Correction to This Article
This article incorrectly described the amount of financing has received from wealthy donors in past years. Wealthy donors accounted for a modest portion of's budget.

Economic Downturn Sidelines Donors to '527' Groups

By Matthew Mosk
Washington Post Staff Writer
Sunday, October 19, 2008

The recent collapse on Wall Street appears to have found another victim: the independent political groups aiming to make an impact on the 2008 elections.

Expected to be a force in the final weeks of the presidential race, outside groups and the pointed advertising they brought to the airwaves in recent campaigns are barely evident this year. Political operatives say the fact that many wealthy potential donors have shied away from investing in efforts such as the infamous Swift Boat Veterans for Truth is that they are simply too busy trying to salvage their own financial portfolios.

"After the [GOP] convention, things looked good," said Phil Musser, a Republican fundraising consultant. "Major donors interested in issue advocacy were tuned in, political juices were flowing, polling looked good, and then, blammo! Most donors lost 20 or 30 percent of their net worth in eight days. With few exceptions, that pretty well shut down the money discussion for a lot of folks."

Four years ago, groups operating outside the party structure invested more than $130 million in television commercials, often carrying the kind of negative messages that the candidates themselves wished to avoid. This year, total spending by such groups is at about $17 million so far, with no single organization playing a dominant role, according to Evan Tracey of the Campaign Media Analysis Group.

Their decline was underway before turmoil swept through the markets. Both Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.) openly discouraged their supporters from backing such groups early on in the campaign. They considered the efforts, often waged by entities known as 527s because of their tax designation, as running counter to the reformist images both candidates were attempting to burnish.

Several major players from past years announced that they would not participate this time around. Most notable among them was T. Boone Pickens, the Texas oilman who helped back the Swift Boat Veterans ads targeting Sen. John F. Kerry (D-Mass.) four years ago.

The legal climate has also changed. After the 2004 campaign, the Federal Election Commission issued an unprecedented $2.6 million in fines against seven 527 groups. This year, lawyers advising the donors to those groups warned that the FEC fines could be a precursor to action by the Justice Department.

But fundraising consultants say the economic collapse ultimately slammed the door. One of the groups expected to emerge as a major player, the conservative Freedom's Watch, hinted that it could spend as much as $200 million on congressional races around the country.

Freedom's Watch launched with a splash, announcing an advisory board that included figures such as billionaire casino mogul Sheldon Adelson and former Bush White House press secretary Ari Fleischer. A year ago, the group launched the first round of what it said would become a steadily escalating barrage of ads with a $15 million campaign supporting President Bush's Iraq war strategy.

"We're forming a never-ending campaign," Bradley Blakeman, a former White House aide who was among the founders, said at the time. "We're taking on generational issues that are not decided at the ballot box."

An early infusion of donations fueled $30 million in expenditures, including ads seeking to influence several congressional special elections. But as November approached, several of the moguls who had been supporting the group became distracted by their own financial distress.

Perhaps most notable among them was Adelson. As his company, Las Vegas Sands, struggled through steep September declines, Adelson saw $4 billion of his personal fortune evaporate as a result of the slumping national economy, and that was before the slow-motion stock market crash. The Las Vegas Review-Journal reported that between Aug. 29 and Oct. 1, Adelson suffered the steepest drop among those who lost $1 billion or more during the credit crisis.

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