“Betting on Zero”

Betting on Zero

THE FIRST EPISODE of the Netflix series Dirty Money concerns the Canadian pharmaceutical behemoth Valeant, which grew rapidly under the questionable leadership of J. Michael Pearson by acquiring companies, laying off their employees, reducing investment in research and development and raising prices on life-saving medicines. Pearson and his merry band were alternately accused of asset-stripping and, in the words of Hillary Clinton, “price gouging”. In a New York Times article headlined “Drug Goes From $13.50 a Tablet to $750, Overnight”, Andrew Pollack described how Valeant acquired two heart drugs called Isuprel and Nitropress and promptly raised their prices by 525% and 212% respectively.

For a large period during Valeant’s inexorable rise, the investor Bill Ackman of Pershing Square was a vocal supporter and a financial one. (He lost close to $3 billion when Valeant eventually collapsed). Which is why I’m sure, reader, that you’ll understand my surprise, as I watched Betting on Zero, to see Mr. Ackman making a moral case for the investigation of the global nutrition company Herbalife, which he had short-sold to the tune of a cool $1 billion.


Betting on Zero purportedly addresses the claim that Herbalife is, in essence, a giant pyramid scheme, in which the participants––the distributors––profit from the recruitment of others rather than the sale of the good themselves. But the film in fact comprises two separate and sometimes jarring narratives, neither of which really investigate the claim.


Betting on Zero purportedly addresses the claim that Herbalife is, in essence, a giant pyramid scheme, in which the participants––the distributors––profit from the recruitment of others rather than the sale of the good themselves. (Ackman laid out this case in a 342-slide presentation given at the Sohn Conference in 2012, citing a ruling by a Belgian court that had found Herbalife to be a pyramid scheme.) But the film in fact comprises two separate and sometimes jarring narratives, neither of which really investigate the claim. The first concerns Ackman’s five-year gamble, and his alleged attempts to manipulate the stock himself through the media and by appealing to the regulator. The second revolves around the damage that Herbalife is inflicting in particular on the poorer elements of the Latino community, where individuals, some of them apparently undocumented, are sold the lie that they can make a fortune by signing up to Herbalife as distributors, only to lose thousands of dollars.

Of these two narratives, the first is infinitely more watchable, in part because of the size of the numbers and the entrance of the grizzled Wall Street veteran Carl Icahn, a longtime Ackman rival, on the side of Herbalife. But the media-savvy and telegenic Ackman is, as I found watching Dirty Money, good value for money all by himself, even if his hefty investments in Valeant and Herbalife transpired not to be. It does, after all, take some bottle to short-sell anything, let alone to put $1 billion into your hunch. When the story follows the beleaguered Latino community, however, the film loses its rhythm. The plight of those who feel Herbalife has conned them out of the life savings is moving, no doubt, but in a strictly narrative sense these scenes fail to bring anything to the story, and would be better served by a standalone film centered on Herbalife’s less fortunate distributors.

Through the story of Ackman’s bet, we come to understand Herbalife’s structure. The organisation, which sponsors L. A. Galaxy and counts or has counted both Cristiano Ronaldo and Lionel Messi as sponsored athletes, is a direct-selling company which distributes its products exclusively through a network of some 3.7 million ‘members’ around the world. These members buy Herbalife products in bulk, and may then either resell them or take them themselves. However, the real money starts to be made when members recruit new members and then sell them products, and when these new recruits sell products to the level beneath them, hence the allegation that Herbalife makes its profit from recruitment and not from its products. The catch––and there always is one, of course––is that in order for members to be eligible for the bonus that comes from sales by the members they have recruited, thousands of dollars’ worth of shakes and supplements must be sold. And if these products are not sold or returned within ninety days, they’re yours for good. Needless to say only a tiny proportion of Herbalife’s many distributors make any money.


The problem for Ackman, and the eventual catalyst for his much-publicised and humbling withdrawal from the venture, was in proving that the recruitment of new members, as opposed to a liking for the product, was the main motivation for distributors. It was generally agreed that both played a part, and for regulators, this sort of grey area is notoriously hard to navigate. 


The problem for Ackman, and the eventual catalyst for his much-publicised and humbling withdrawal from the venture, was in proving that the recruitment of new members, as opposed to a liking for the product, was the main motivation for distributors. It was generally agreed that both played a part, and for regulators, this sort of grey area is notoriously hard to navigate. Director Ted Braun, however, comes down decisively on Ackman’s side, and Herbalife clearly thought so, too: it was reported that the lobbying firm Podesta and Partners, which is retained by Herbalife, bought one hundred and seventy three tickets to an early screening in an attempt to keep the theatre empty. The evidence, and I imagine the gut instinct of most viewers, suggests that whatever you want to call what Herbalife is doing, it’s far from ethical.

Betting on Zero is a perhaps unlikely success. Films in which the nominal hero is an ultra-wealthy hedge funder seldom fill cinemas or set the stage alight, after all. But Ted Braun does an exceptional job of dramatising this clash of financial titans and, in so doing, holding Herbalife to the light for all to see. The inclusion of the stories of the victims, or at least the way in which he chose to tell the story of the victims, was a misstep, but Betting on Zero remains an interesting and supremely watchable film. Ackman, meanwhile, who wasn’t involved in the financing of the film, might find its conclusions encouraging. Braun seems to say that in the moral sense Ackman won the battle, even if he lost financially. “Truth, candour and transparency,” Braun later said, in an interview with the New York Times, “are at odds with the measuring stick Wall Street applies.”

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