When Is An Auction Not An Auction?

by bobandanna on May 27, 2012

We live in farm country, and almost any weekend we can go backroading and find a good old fashioned farm auction. Local farmers, villagers and adventurous city folk with lawn chairs and kids park their pickups, minivans and smart cars at the side of the road or on the front lawn and meander over toward the barn, following the patter of the auctioneer.

You never know what you’ll find on the block – everything from home-made farm implements to boxes of lace curtains and old sepia family photos in oval frames. You may come away with a real treasure like a half inch Milwaukee drill for ten bucks or a butter churn for three dollars that will be just perfect for your front porch.

But even if you bid all day and never buy a thing, it’s great entertainment and a wonderful way to learn some history and meet your neighbors. The day costs you nothing but your time and a bit of gas to get there. If you don’t bid or don’t buy, your money stays in your pocket.

Now suppose this sale was run by the penny or reverse auction people.

As you leave your car and head for the barn, you’re greeted at the gate by the bid seller. He tells you that in order to bid at today’s auction, you have to buy a ‘bid pack’, a stack of cards at 50 cents each. You had planned to spend no more than $50 today, so you buy a stack of 100 cards and move toward the auctioneer and the bidding action.

The first thing that catches your eye is a collector plate. You know it’s worth at least $50, so you start bidding. What a surprise that every time you raise your hand, a bid collector beside you in the crowd takes one of your 50 cent bid cards! You realize that each bid is costing you money, but you really want that plate and it’s getting exciting now so you keep on bidding. At $45, you decide to drop out and let the plate go to the highest bidder at $50.

Let’s slow down here for a minute and figure out what just happened.

You raised your hand ten times to bid on the plate, and each time you had to give up one of your bid cards. At fifty cents each, that cost you $5 to bid, and you didn’t get the plate! There were five other people bidding, so it cost them $5 or so each to bid, so let’s see …

The winner paid $50 (100 fifty cent bid cards), you and the five other losers gave up $5 each in bid cards, so that’s 6 x $5 or $30 for a grand total of $80 for a $50 plate. Not a bad deal for the seller and the auctioneer!

You feel cheated, decide to leave and cash in your unused bid cards for the $45 you don’t want to spend here. At the gate, the bid seller shows you the fine print that the bids are non-refundable and you’ll just have to go back and bid on something.

Frustrated, you head back to the barn and bid on some more stuff. You don’t get the antique milk bottles or the hand made quilt. You can’t afford them, so you miss the coin collection and that ox yoke you’ve always wanted. At the end of the day, you’ve come away with nothing, but the bidding has cost you $50.

You look around the barnyard to see a hundred others like yourself and calculate that if each bidder bought $100 in bidcards, the auctioneer has collected $10000 before the bidding even started. And where did that money come from? Out of the pockets of losers like you.

You are walking away from the day with nothing to show for it but a $50 hole in your wallet. Not much different from the casino, is it?

It gets worse …

You notice your friend Sheila standing by her car counting a wad of money. When you ask how she made money while you lost, she explains that she got a cut of your spendings just for inviting you. She invited a dozen people and made a couple hundred dollars. Out of your pocket!

You mutter into your car and grumble home, vowing never to attend a ripoff auction again, or ever go bowling with Sheila The Shill.

This is exactly what happens in ‘reverse auctions’ or ‘penny auctions.’ Here is an explanation from a site praising their own auction scheme. They even give themselves a seal of approval!

“How to Recognize a Scam from “The Real Deal!” Penny Auctions and Affiliate Marketing Scam Report

If you are new to Online Penny Auctions, Affiliate Programs or both and are wondering: “Is this a scam?” “How is it possible for this company to actually auction away these items at such ridiculous prices?” “Is this one of those Pyramid Schemes?” You’ve come to the right place. First and foremost, the answer is No, we are not a scam. Like other Online Penny Auctions, our business model loses money on approximately 70% of the products in our auctions. We make our money on “bidding activity” and also earn revenue on approximately 30% of specific auctions.”

Legitimate companies make money by sales and pay commissions out of the difference between wholesale and retail. This company is openly admitting that they make no money from sales. Their revenue comes from “bidding activity”, i.e. out of the pockets of losers – people who bid on items but lose and receive nothing for their money.

“Here’s how it works: Every person who bids on Penny Auction site [Name], purchases what is called a “Bid Pack.” Our bids cost the bidder 65 cents each. When a bid is placed on a penny auction item (let’s say for the sake of this example – it’s an Apple iPad.) the company receives that 65 cents on every bid. So, on a $10.00 item – 1000 bids were placed – and the company received the equivalent of $650.

We pay commissions and overrides up to 13 cents per bid – so the company now has $520 to work with. Then we purchase and ship the iPad to the winner which costs us $499. The company just retained $21, you just walked away with an iPad for $10 and the referring affiliates responsible for your coming to bid (and win) earn “thank you” commissions on the bids you purchased. That’s what we like to call… “A Win – Win – Win Proposition!” We are extremely dedicated penny auction site to our Fair Bidding Policy and to maintaining a fun, safe and profitable environment for our bidders and representatives.”

Let’s slow down again …

The company sells one thousand bids at 65 cents each and collects $650. They pay out 13 cents per bid or $130 in “thank you commissions” to people like your friend Sheila who invited you to play and lose.That leaves $650 – $130 = $520 for the company “to work with.”

They buy and ship the product at a cost of $499, leaving just $520 – $499 = $21 for the generous company to call profit.

This is NOT “a win – win – win proposition.” YOU did not win the iPad. ONE person won the iPad, and dozens of other losing bidders came away with nothing. Even if you did win, the losers are still there, built into the system. Hardly a “safe and profitable environment” for 99% of the bidders!

We guess that costs are much lower, the bids are more numerous, and the final price is much higher than in this example which is designed to mask the huge amounts of money collected from losing bidders. No company, legitimate or otherwise, could sustain a business model that brought them just $21 on a $500 item. Farther down the page in the FAQ, we read …

Bids cost 65 cents per bid. Bids can not be returned once purchased or reversed after they are used. Every penny auction site typically starts at $0.01 and continues until the end. Every time there is a bid placed the auction goes up by a set amount, typically $0.01 to $0.08.

Whoa! Let’s slow down and get out the old abacus again …

Auctions start with a price of 1 cent, and with each bid, the price rises by an amount between 1 cent and 8 cents. Later on the page, a 1 cent increase is mentioned again, so let’s make the company and shills the highest ‘profits and commissions’.

Each bid costs 65 cents and changes the price by 1 cent. No one is going to watch an iPad go for $10, so let’s assume that it sold for a more reasonable amount like $100. $100 divided by 1 cent … let’s see … that means 10000 bids were made, bringing the company $6500!

The shills earn 10000 x 13 cents = $1300, leaving the company $5200.

The company ships out the iPad at a cost of $500 as they claim, and that leaves $5200 – $500 = $4700 in ‘profit’ for the company. $4700 on a $500 item is much more attractive than $21, no?

And don’t forget where that money came from – out of the pockets of the losers.

And that’s when an auction is not an auction.

Learn more about the difference between scams and legitimate network marketing companies with this free report Big MLM Lies.

Bob and Anna Bassett

519-371-1028
Skype bobbassett
bobandanna@togethertothetop.com

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{ 5 comments… read them below or add one }

bobandanna September 11, 2012 at 7:35 am Thumb up 0 Thumb down 0

Great word pic, Simone! At a farm auction, the manure is up to your bootlaces. In Zeek, it’s up to your neck. Thanks for the laff! Bob and Anna

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Bob and Anna Bassett June 3, 2012 at 11:02 am Thumb up 0 Thumb down 0

Great point about losing before you begin, Jimmy!

When we go to a casino, we KNOW the odds are stacked against us and the house always wins. The trade-off is that we have some fun for a few hours with loud music and fellow losers and come home with less than we started with, as expected.

These ‘auctions’ get our hopes up way higher than a casino ever would, and somehow make casinos appear ‘honest’! Go figger.

Thanks again for your comment, and we hope it’s okay to copy it to our blog article at http://togethertothetop.com/?p=10482

Bob and Anna

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Jimmy June 2, 2012 at 10:40 am Thumb up 0 Thumb down 0

Thank you for the useful information! If only I read about this before jumping in…
I found out about penny auctions a few months back, and unfortunately, I was consumed by my greed, I have to admit. It was really irresistible seeing an iPad going for $80!
However, being a cautious person, I still researched the ‘game’ from several angles, and even did extensive reverse calculations for some of the items already sold to estimate an end price. All those calculations weren’t useful though; I put in $150 dollars, played the ‘game’ a little, and then only did I realize what sort of game it was. I pulled out immediately with that loss and never got back to that site again.
After that experience, I would say that penny auctions are in fact WORSE than gambling. In gambling, assuming fair game, you don’t lose money UNTIL the final card/roll/etc is revealed; that is, you won’t know for sure that you’ve won or lost until the final card is dealt. That is the very essence of betting; to gamble on luck. But with penny auctions, you’ve already made a lost BEFORE you’ve even started the game; the only way to recover your lost is to WIN the auction. So technically, you’re already in a disadvantageous position before you even play the game.
IMO, I’d say such auctions are frauds. Let me give some examples from the reverse calculations I did:
~$8000 profit for an iPad
~$12000 for a DSLR camera
heck, even ~$50 profit from selling their game tokens used for the auction
Just like pyramid schemes: 1 winner, everyone else a loser.

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bobandanna May 30, 2012 at 5:24 pm Thumb up 0 Thumb down 0

Here is a thread from http://www.mlmwatchdog.com by Rod Cook …

ZEEK SHORT FUSE = DEAD CHECKS
29 May 2012 – ANNOUNCEMENT – Zeek/Zeek Rewards is currently in the process of moving to a bank that can handle our growing needs and while in transition will be closing our old accounts with both New Bridge Bank and BB & T,” (both FDIC Insured) Zeek said on its news Blog. “Please be sure to deposit or cash any commission checks immediately so they clear before June 1st, 2012 or they will be returned to you with ‘account closed’ and will need to be reissued.” No reason was given and a new bank was not named yet.

Zeek international uses AlertPay (now Payza) and SolidTrustPay for transactions outside the U.S. Both AlertPay and SolidTrustPay are watched by FEDS (and Interpol) for being friendly to scams such as HYIPs, autosurfs and cycler matrices.

ZEEK REWARDS UPDATE
Feb 4th 2012 ZEEK REWARDS has hired not one but two MLM law firms to pull them back from what was a sure meeting with the law! They also hired a complan builder to work on building a system that does not look like gambling. One of the major activities they are taking for protection is DISTRIBUTOR COMPLIANCE so that Distributors do not describe the Zeek opportunity as a ponzi scheme like they have been? I wonder how they get all those ponzi claim videos off of http://www.youtube.com to get them to safe harbors? Here is one Zeek pitch the audio has been removed from so the compliance does have a trickle down effect opens > new window http://www.youtube.com/watch?v=sa9D5O71Q6M
others we can’t be so sure because they go to blind web site which means Zeek Police (as Zeek Distributors are calling them) this opens new window!> http://www.youtube.com/watch?v=8xtMDxBf8Zo&feature=related
I am leaving ZEEK on the Watch list so we can see how their compliance battles work. I think we will see Distributors terminated over this (always bad) to protect the company.

ZEEK REWARDS I AM GETTING A LOT OF QUESTIONS
Jan 25 th 2012 ZEEK REWARDS is the MLM arm for a penny auction named Zeekler. Penny auctions are addictive like gambling. Their compliance is bad with distributors making some wild claims like “mega money no recruiting or selling. The buying of points or credits for the auction and their use is questionable. The owner Paul Burks ran Free Store Club and an Internet mail program New Net Mail in years past both generated some complaints. The biggest problem I see is that they are in North Carolina who has no good sense of humor about any MLM.

REX WORLDWIDE
Jan 24th 2012 Rex World Wide is an MLM charity play that pays commissions on gift certificates to help charities. You can look it over at http://rexworldwide.net/ they know that they are treading on thin ice since this is illegal in almost all states in the U.S. How do we know that? The company is registered in Switzerland and operated out of the Philippines. Putting money in any offshore company is dumb since you can’t get your money back. Heck, you can’t even complain to someone!

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Simone August 17, 2012 at 3:48 pm Thumb up 0 Thumb down 0

Hi guys, Thanks for you well researched article. I have come to the same conclusion on my own and have warned people to not join them, in one case i was just in time. The fellow had planned to put in 5,000 hard earned dollars, so he could double it in a few months. Well he didn’t quite make it down the road to the farm auction cause I told him : Don’t step into the s….it … Thanks guys really great contribution !!

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