I'm glad I don't work in Herbalife's (NYSE:HLF) PR department.
While "Betting on Zero" is not a decidedly anti-Herbalife movie from the onset, its ability to profile real victims, the Wall Street story and the simple truth about the company's business practices could be absolutely devastating to Herbalife if the film is picked up and distributed on a national scale.
And unlike anything that we have seen throughout the media coverage of the Wall Street story, "Betting on Zero" tells us the story of 10 to 15 undocumented Latino immigrants who have lost hundreds of thousands of dollars as Herbalife distributors. The film follows them in a quest for justice and reparations, led by LULAC activist Julie Contreras. The film profiles Contreras just as much as Ackman, explaining her ferocious activist nature as the product of proud Mexican parents and a gunshot wound that almost left her dead in the early 2000's. A notable scene in the film is Contreras' reaction to a cease and desist letter sent to her from Herbalife. Contreras, in tears, swears to never apologize for sticking up for victims of Herbalife.
The interesting thing is that as a short seller myself, I have seen every piece of media correspondence and interview regarding Herbalife that has been generated over the last four years. I have all public interviews basically committed to memory, so much of the movie was very familiar. Director Ted Braun sprinkles various clips from both sides of the argument in national media to tell the Wall Street story of Ackman's crusade against the company alongside Contreras'.
What surprised me was the incredibly touching human element to the movie, which profiles not only Latino activists in Chicago, but also a nutrition club entrepreneur with a business degree from Oklahoma named Zac Kirby. Kirby puts up his only asset - a restored Mustang - to raise $15,000 to start nutrition clubs after being recruited into Dan Waldron's downline.
I had the pleasure of meeting Mr. Kirby while I was waiting in line for the movie. Prior to watching it on the big screen, he described to me the moment he realized (after reaching Herbalife's Global Expansion Team "GET") that he was perpetuating the pyramid scheme. He had an epiphany and realized he had a moral obligation to not perpetuate a business model where he knew he would be swindling others. The film documents Mr. Kirby's business transition out of Herbalife nutrition clubs and into a successful series of Vape shops.
The movie has some surprisingly touching and deeply emotional moments. I always knew that what the company was doing to people who did not understand how the business plan worked was disingenuous. But seeing on film a group of victims literally praying to God for justice after many of them severed relationships and spent hundreds of thousands of dollars tugged at the heartstrings of Ms. QTR and I, who both teared up.
While the movie follows Ackman through much of his crusade, it does also raise critical points about Ackman's intentions and his use of investor capital. In addition, the movie goes on to show that Ackman's short has been a failed investment thus far from a monetary perspective.
But that takes a back seat to the conclusions the audience are forced to draw, namely that Herbalife is doing far more harm than good.
Clips of Herbalife executives were taken from various interviews and showcase a broad array of obfuscation, indifference and flippancy toward the victims, and the methods with which the company makes its money.
While it is clear that Director Braun wants to take an objective look at the situation, you cannot help but come out of the movie rooting for the victims and feeling educated on the basic pitfalls of what being an Herbalife distributor could entail.
Again, the movie's strength lies in its ability to tell the story and tell the truth about the company in a manner that would resonate very quickly and very clearly with a national audience of varying intelligence levels. The movie could very well turn out to be a PR nightmare for Herbalife if it gets picked up for national distribution. It is very easy to see how this film could easily be compared to documentary exposes like Blackfish or Super Size Me.
Mr. Ackman has slowed down the business on his own with his criticisms, but he still suffers from some Wall Street disconnect. People know that Mr. Ackman is a hedge fund manager and they know he's critical of the company, but they don't know a lot more after that. While Mr. Ackman's presentations to the public have been clinical in nature and perfect for regulators, they can be too long and lack pathos that would cause them to resonate with those not familiar with the situation. Betting on Zero hits all of these notes.
The film promptly defines what a pyramid scheme is and then makes what the viewing public will see as a very clear-cut case as to why Herbalife fits that mold, why it was founded on ridiculous testimonials from day 1, and why the culture of these testimonials continues to fuel the business to this day despite the company's attempted reforms.
Herbalife executives declined to participate in the film, which may have been one of the worst PR decisions they have made thus far. The lack of a current defense from the company left the door open for Mr. Braun to point out numerous misstatements, obvious lies and evidence of a pyramid scheme that the company has put into the public domain.
Braun puts this movie out at a time when the multilevel marketing industry could be at the midst of a new epoch. I predict that this movie will help define the ludicrous scam that is multi-level marketing for the general public today and those eager to listen years from now.
The film leaves viewers feeling anguish, as it points out that no action has been taken by regulatory agencies thus far. The touching human element to this movie could put regulators in an extremely embarrassing situation with the public if they fail to act appropriately against the company. The film makes it clear that the company's political interests have allowed it to dodge regulators for over 30 years and the public perception of regulatory agencies would likely be given an ugly demerit if the swift action that Braun leaves you wanting by the end of the film is not taken.
Disclosure: I am/we are short HLF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.