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Sunday, May 07, 2006

No Such Thing As Free Money

The other day I saw a guy who had a sign mounted on the side of his car. "APP / JOIN OUR GAS CLUB / SAVE UP TO 25% ON GAS / Call (xxx) xxx-xxxx". Curious, I did some quick web research.

APP is American Petroleum Promotions. APP is an MLM (Multi Level Marketing) company which claims to sell $200 gas cards for $150. To order the gas cards, you have to pay an annual $300 membership fee, which if included in the calculations means you only really get a 12.5% discount on your gas cards, not 25%. However, if you sign up as a member of the MLM chain, and get other distributors of gas cards to sign up underneath you, you earn free gas cards.

MLMs are the slightly more respectable (and legal) cousins of the famous Ponzi or Pyramid Scheme. The difference is that in an MLM, some real product flows down the pyramid.

APP is not to be confused with a gas pre-purchase service, which allows you to pre-pay for gas by the gallon, and then draw down on your reserves when prices are high. These are legitimate businesses which work on the same principle as gasoline futures contracts.

So how could this work? APP's web site claims that it can do this through the power of mass purchases--but this is an obvious lie. APP is selling fuel purchase cards that operate on the Discover credit card network--they aren't buying physical gas.

No business can sell $100 bills for $85 and stay afloat, despite the joke that they could make it up on volume.

My guess is that APP can stay afloat as long as new members sign up, paying the $300 up front fee, and as long as new legs of the MLM chain sign up, paying additional fees. As long as the pyramid keeps growing, there will be enough cash flow to pay for $200 gas cards.

When APP stops growing, they won't be able to cover their expenses, and whoever ordered fresh gas cards will not have their orders filled.

This actually happened to this very company once already. In 2003, APP was based in St. Louis Missouri, and the business collapsed. Some details appear here. and BBB report is here. Later, a new owner bought APP and moved it to Texas.

Another reason to be wary: the APP membership application requires your Social Security #. I couldn't find any explanation for this requirement.


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Anonymous said...

Well, your line of work explains in great detail to me why you don't like this program. I didn't see attorney after your name and I wonder just how qualified you are to make these assumptions.
I have looked at many mlm companies over the years, but not this one as of yet. You are making too many judgement calls and I don't think you have all of your facts. Even though you may be correct, I suggest you research these statements a little more before you kill a company. I'm not familiar with this company, but I will be by the end of the week. I can't stand people that pass judgement on mlm companies just because they can't make it in this business.

Anonymous said...

I was a member of APP and bought two gas cards in 2003. The company went bankrupt or something and it's 2007 and I haven't received my gas cards. That's $300 spent on the gas cards and $300 for the membership.