Fake News in the Movies with the Documentary “Betting on Zero”

Andrew Quinlan
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Posted: Mar 10, 2017 10:38 AM
Fake News in the Movies with the Documentary “Betting on Zero”

While “fake news” may be a relatively new addition to the nation's political lexicon, the phenomenon itself is not uncommon in Hollywood. Case in point: A “documentary” titled “Betting on Zero” is marketed as a look at the company Herbalife and the heroic efforts of billionaire hedge fund manager Bill Ackman to bankrupt it, but misses perhaps the most important aspect of the story.

First, a little background. In late 2012, Ackman announced that he was taking out a $1 billion short on Herbalife’s stock. Essentially, he was betting the company would fail. Herbalife's stock took an immediate hit as Ackman tried to convince public investors to squash the company during a long public presentation that included hundreds of slides explaining why Herbalife was destined for bankruptcy court.

Ackman fancies himself as an “activist investor,” but the focus of his pursuit is rather odd. As explained in “The Siege of Herbalife,” an extensive Fortune profile of Ackman and his crusade, “Herbalife might seem like an odd target for such venom. Based in Los Angeles, it doesn’t make cigarettes, sell alcohol, manage casinos, or emit pollutants. It’s a 35-year-old, 8,000-employee nutrition company that sells 5,300 products in 91 countries, including weight-loss powders, vitamins, performance sports drinks, and a skin-care line.”

Herbalife's crime in the eyes of Ackman? It's modeled as “a multilevel marketing company, or MLM. MLMs distribute their products through independent contractors who are rewarded not just for selling the company’s products but also for recruiting other distributors to do so, and for persuading those recruits to recruit still more distributors, and so on, in a pyramidal structure.”

The movie “Betting on Zero” features some individuals who made questionable investments, or didn't fully understand the risks involved before jumping into a new business. It uses their pain to turn the public against Herbalife. Yet while their plight is unfortunate, no industry is without lost investments and failed enterprises. That alone doesn't sustain Ackman's claim that Herbalife, whose stock has done much better than Ackman's fund since the initial reaction to the short, is a pyramid scheme.

While MLMs can be used as pyramid schemes, that alone doesn't make a business suspect. Many well known and popular companies use the business model, such as Avon, Tupperware, and the newer Rodan + Fields. The important question is whether the company is moving product or just signing up new “distributors.” And on that front Herbalife seems to be doing just fine.

The story that should have been told is how Ackman has lobbied government regulators to shut down Herbalife. It's an intriguing story of cronyism in this age of political cynicism and distrust of government. The fact that “Betting on Zero” was also funded by a short seller who himself shorted Herbalife, and has held short positions on other direct sellers, both adds another layer to the story and explains the films short-comings.

One website critical of the film makes the case that the movie might even rise to the level of biased “fake news:”

“The fundamental problem with the “Betting On Zero” film is that while it calls itself a “Herbalife documentary”, it really is an infomercial that is neither balanced nor grounded in the truth. It fails to capture one important side in this battle and fails to interview any of the more than 4 million independent distributors or customers who use Herbalife Nutrition products around the globe.”

A website promoting the movie makes the case that this is a heroic story about “hedge fund titan Bill Ackman who puts a billion dollars on the line in his crusade to expose Herbalife as the largest pyramid scheme in history.” The movie makes Ackman appear to be a hero, while glossing over his shady investment in Valeant Pharmaceuticals, which was accused of a pricing strategy that ended up being the subject of Congressional hearings.

The bottom line is to be wary even of sources that claim to be balanced and unbiased. This film is overly concerned with making Bill Ackman look like the Robin Hood of Wall Street. In so doing, it has missed—and actually contributed to—the danger to the political system and the economy when billionaire investors are glamorized for seeking government action to destroy another company for financial gain.