MarketWave Grade: MS62
Len Clements © 2010
If I ever kept a record book on such matters, the number of requests for my “opinion” on Numis Network might be a contender for the #1 spot, at least this year for sure. So, even though I’ve had to take my “watchdog” hat off the last few months (in lieu of my “distributor hat”), and after spending the last few weeks actually trying to get my facts straight before commenting publicly (I hate the taste of foot), for what it’s worth, here’s my take on Numis…
I participated in a public, but not well publicized, debate call with the Numis leadership a couple of weeks ago. Also on the call were Shannon Denniston, Troy Dooley and attorneys Spencer Reese and Kevin Thompson. I think Numis cofounder Jake Kevorkian and his team won some major credibility points by just agreeing to this call. They represented themselves and their company admirably. They also made a great case for why the coins themselves are a legitimate, viable product. As an avid baseball card collector I can vouch for the fact that, although they are arguably an “investment” (I could have made a nice living buying and selling cards in the early 90s, before the bubblegum bubble burst around ’95), I collect them simply because a Nolan Ryan rookie card, or a 1957 Hank Aaron error card, are just cool to own. I can easily see how folks might feel the same way about silver coins.
So no, Numis is not the same thing as all the gold & silver deals that have been shut down in the past (American Gold Eagle, Gold Unlimited, etc.). They are not simply selling an alternative form of American currency (like selling a Susan B. Anthony dollar for $1.00), nor are they selling vouchers in lieu of coins.
Having said that, I still don’t understand why anyone would buy them from Numis when just a few minutes of shopping online can almost always find you a lower price. I surveyed several of the coins offered by Numis and found there to be a very narrow channel of pricing with Numis being on the high side of, but almost always within, that channel. And yes Numis-folk, I did consider the grading service. For example, the average price of a 2010 MS70, which Numis sells for $99.00 was $92.44 (9 dealers and 20 closed eBay listings). The average price of the 5 ANACS rated coins (2 dealers, 3 eBay), the service that Numis uses, was $80.98. Numis’s own Mike Mezack was on HSN selling the identical coin for $99.95. I’m not saying Numis isn’t competitive. They are. They’re just selling something that has very little margin that can be purchased at the same or lower price from numerous other sources.
So, since there is no significant margin on these coins the MLM pay plan has to be based on something else. The only other thing that is commissionable, and indeed is where the large majority of distributor income is derived, is the “Fast Track Collector’s Kit”. I’m not at all convinced that this kit is a viable, stand alone product of any real value to a non-participant. I’d still like to know how many of the kits have been sold to someone who is not a Numis distributor. This kit contains:
1) “A beautiful, Graded Coin Attache’ Case to safeguard, carry, and display your growing collection with pride.“
Such cases can be purchased retail for about $60.00 and are offered separately by Numis for $59.95.
2) “Your first MS70 Silver American Eagle to start your collection.“
This is the 2010 MS70, Its market value is between $80-$100.
3) “Access to the ‘Coins Are Cool’ video training series. This training system will teach you about numismatic coins and the industry.“
Although I’ve heard this is a great training series, there is an overwhelming amount of numismatic training and educational material available online for free.
4) “Membership in the Silver Coin Of The Month Club, which automatically delivers to you a perfectly graded, certified silver coin from one of the world’s leading mints each month.“
These coins can be purchased individually, so although a nice convenience, it’s just a convenience.
The coin collecting part of Numis I actually like. The MLM part, though, is almost entirely based on selling these overpriced $325 Fast Track Kits (which over $200 in bonuses are paid out from). The legality of Numis ultimately rests on the motive for buying these kits. Are thousands of people buying it right now because they actually want it, and would have purchased it anyway even if there were no income opportunity, or are they buying these kits because they are part of the $495 package to be an Executive distributor?
Here’s a question that was never asked on the call, which I’d still love to get some feedback on: When the Executive package went up from $299 to $495 last month, and bonuses were also raised, what was added to the Exec. package to account for this supposed 66% increase in value? Was the Fast Track Collector’s Kit included in the $299 Exec. package?
There’s also been a lot of chatter online about the fact that over 30 million 2009 Silver Eagles were minted, almost 7 million 2010s have already been minted (and will likely end the year at around 20 million), thus something can’t be of great collector value if it is not rare. But in Numis’s defense, it’s the highest possible MS70 rating1, meaning the coin is virtually flawless, even under a microscope, that causes a coin to go from it’s silver content value (in this case around $20) to the $99 value, or what ever it is for that particular coin. There’s also such things to consider as whether or not it is a “first strike”, meaning one of the first coins for a new mintage to come off the line (supposedly the die that’s used by the mint wares down over time), and which grading service came up with the MS70 grade (there are several such services with varying degrees of credibility). After having read up on this pretty extensively I’ve come to the conclusion Numis is not at all being misleading in anything they’re presenting. The numismatic grading industry is! For example, this “first strike” or “early release” BS. Besides the fact the dies are often changed throughout the year, a coin is either MS70 or it isn’t. It’s either flawless, or it’s not (perhaps due to a worn die). Nonetheless, Numis is using ANACS, widely considered to be one of only four “A” rated grading services. I think that’s grading them on a curve.
Numis is also extremely vulnerable to SEC ire when it comes to claims of “increasing value” or anything that would suggest their product (gold and silver coins) are a good “investment”. This has contributed to the demise of gold & silver coin deals in the past. Numis corporate did a great job of defending the corporate position on this, and they do appear to be proactively trying to educate their reps in this area. But it’s not what comes out of corporate that they need to be concerned about. State and federal regulators go by what’s actually happening in the field, not what is suppose to happen. And so far, it doesn’t look good. The “investment” angle is being employed by numerous Numis reps. Just Google Numis plus “[great, good, best] investment”. There are many websites already in gross violation of this policy. Numis is going to have to have one of the largest and most active Distributor Compliance offices in the industry. But let’s give them the benefit of the doubt for now and see what they do. A great test will be to check in 90 days from now and see how many of those hundreds of websites are still making the same claims.
Numis’s response to this was that they were in no different a position that any dietary supplement company who is prohibited from making disease treatment claims. I disagree. Precious metals, especially bullion coins, are commonly marketed as investments and as a great hedge against inflation. I understand that Numis is selling numismatic (collector) coins, not just bullion coins, but the collectible is still composed of something well known, and well marketed, as a great investment. So the analogy with supplements is flawed in that supplements don’t contain, for example, penicillin or Acetaminophen (Tylenol). If they did they would have a substantially greater challenge keeping their reps from making antibiotic and anti-pain claims. The product Numis is selling is composed of gold and silver, which is by its very nature considered an “investment”.
As a collector (trading cards now, coins and stamps in the past) I like the overall concept of Numis. However, some products and services, no matter how valuable, just don’t lend themselves well to an MLM opportunity. Travel, for example. There’s simply no money from the actual travel left to create any real income opportunity in the comp plan (around 3-5% of the actual cost of travel goes into the plan), so such deals compensate by adding a several hundred dollar “training package”, or “travel booking website”. Both of which are entirely distributor-centric, and thus ultimately gets the company in legal trouble. Same with the old long distance service MLMs. The service itself injected literally pennies into the pay plan (typically you got less than 1% of an average $25 monthly phone bill). So, they added several hundred dollar “training” packages, and paid $100-$250 “coding bonuses” from those packages. Numis now has the same challenge. The coins themselves have very little margin, and add little to the plan. So to compensate they came up with a $325 “Fast Track Collector’s Kit” that appears to have a net cost of around $120 (assuming Numis is getting the best coin prices and quantity discounts on the cases). That’s how they can afford the total payout of around $200 (on average, it could be more).
All legal issues aside, when the primary source of income in the MLM plan is a one time occurrence (the $325 kit) this also does not lend itself well to long term residual income. That usually involves making a sale once and that sale generating income for months, years, or for life. Like selling a “potion” or a “lotion”, using it up, and then reordering it. For these Collector Kit related bonuses to continue there must be an ongoing, never ending flow of new, first time customers (distributors?). It’s kind of like selling a water purifier or any other type of non-consumable hard goods – which is why virtually all MLM companies that have sold such products have migrated to the ol’ “pills and potions” (NSA, Nikken, etc.). Yes, I know $6.00 from each monthly coin sale is paid from the binary plan. But again, that can only be because Numis is buying them at the low end of that price channel and selling them on the high end (giving them every benefit of the doubt in that none of that ongoing six bucks is also coming from the one time Collector Kit purchase, or worse, the high margin $75 distributor entry fee or the higher margin $119 annual web access fee). But, again, you can also access the low end of that pricing channel (just check eBay) right now, without having to pay anything to Numis.
On a completely different front, there’s also the issue of non-exclusivity. Unlike “potions” that have their unique nanopolyxanphytosaccharides (or what ever), or “lotions” that have their proprietary puppy placenta proteins (or what ever), a 2010 MS70 Silver Eagle is a 2010 MS70 Silver Eagle. That is, if Numis does make this work there’s inevitably going to be numerous Numis knockoffs. What’s going to happen when there are several MLM companies all competing for the same limited supply of Numismatic coins? My guess? The coins will become even more deemphasized within the pay plan in lieu of the high margin “collector kits”, membership fees and training. And as more and more companies compete on that level – and more and more of them overprice their kits, fees and training to support an even higher pay out – they’ll all start popping up on regulatory radar screens again. But I’m prophesying. It’s just a theory.
Will Numis reign in their numerous renegade reps who inevitably will and are making investment claims? Will anyone of any actual legal authority ever question the value of the $325 Collector’s Kit to a non-participant in the income opportunity, and the motive for purchasing it among those who are participants? What will be their conclusion?
These are subjective questions. For now, they are a matter of opinion. You’ve got mine. Now we’ll have to wait until someone who’s opinion actually counts decides to buzz in.
Time will tell. It always does. It just takes its time.
Len Clements
Founder & CEO
MarketWave, Inc.
1. Such coins are graded MS60 to MS70, with only MS60 and MS61 being considered poor grades. Based on several online definitions, MS62 to MS70 appear to represent degrees of good.
Update: Numis president Ian Cordell responded to the above review on April 2nd, 2010. His response, unedited and verbatum, can be viewed HERE.
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