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The Obama Money Situation

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Today's New York Times features this front page story, which begins: "After months of record-breaking fund-raising, a new sense of urgency in Senator Barack Obama's fund-raising team is palpable as the full weight of the campaign's decision to bypass public financing for the general election is suddenly upon it." Also this morning, Marc Ambinder has a must-read post entitled "Quietly, Obama Campaign Calls in Cavalry," which says that "Obama's campaign will no longer object to independent efforts that hammer John McCain, just as, in their mind, the McCain campaign has not objected to those efforts targeted at Obama." (The Center for Competitive Politics applauds the free speech extravaganza.)

From the two pieces, it sounds like a bit of panic coming out of the Obama campaign, reinforced by a major tightening in the daily tracking polls (which I have advised people on both sides to stop obsessing over).

The race is indeed tightening, which explains why the Obama campaign wants a lot of money, and especially wants advertising now before the last major events of the campaign season, the debates. But from a strategic perspective, the decision of Obama to opt out makes perfect sense and does not look like a mistake even in retrospect.

If Obama opted into public financing he could raise no funds for his own campaign (besides about $20 million in GELAC funds---for legal and accounting compliance), and would receive a government grant of $84.1 million. He could help raise funds for the party (the national party can take donations of about $28,800 and the state parties can take more for federal election purposes), and the party could use that money to help him get elected under some convoluted rules that are spelled out in the Times article. This is the route that McCain has taken.

Going the private fundraising route has three risks for Obama:

1. The PR risk. McCain tried to make a lot of hay over Obama's failure to abide by a promise to aggressively pursue a public financing deal with his Republican opponent if he were the nominee. I've explained that neither side has a monopoly of virtue in this area---McCain was against taking public financing before he was for it before he changed his mind again in the primary. But more importantly, this kind of process-inside baseball argument is not likely to resonate with voters.

2. The time sucking risk. If Obama needs to go off in person and attend a lot of fundraisers, that keeps him off the campaign trail as the election closes in 8 weeks from today. First, it appears that most of the in-person fundraisers will be by surrogates. Much of the campaign's fundraising will continue to come from online donors, who now number over 2 million and who contributed an astonishing $400 million+ to the campaign during the primary season.

3. The Outspending Risk. The Times article explains that the Obama campaign may be off its target to raise $300 million for the campaign during the general election season and another $150 million for the Democratic Party. But there's no question that Obama will well outraise the $84 million that McCain will get as part of public financing for the campaign. The Democrats have known that the RNC has had an easier time raising money in those $28,800 chunks than the DNC, so the decision of McCain to opt into the pubic financing program was of little risk to him---the big money will be coming into the party. Faced with that asymmetry,the Obama campaign has taken the artificial constraint off his fundraising so that Obama and the DNC can reach some kind of parity with the McCain campaign and the RNC. In terms of outspending, Obama faced a much bigger risk remaining in the system than he faces by opting out.

The Times article may be just the thing the Obama campaign needs to get some money rolling in---a little panic is probably a good thing from their perspective.

As for the 527s, I think there may be a different explanation than one that Obama needs outside resources. Instead, he needs groups that can go more negative on Palin and McCain. Obama is trying to run as a different kind of politician, and it would interfere with his branding to go overly negative. But outside can attack in ways that Obama cannot (think of the recent union ads attacking the cost of McCain's shoes), and with the race tightening, especially in the battleground states, negative advertising probably is what the campaign wants and needs right now.

The story of money in this election is a fascinating one. I've just completed a draft article (which I hope to post later this week) on changes in the fundraising system during the primary season. I'll be writing another when the entire election is done. Suffice to say that the role of money in the presidential election is changing in some fundamental and important ways. Stay Tuned.

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