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.

A spokesman for Adelson, Ron Reese, said "Mr. Adelson does not comment on his political activity."

Another Freedom's Watch patron, New York financier Paul Singer, also stepped back his involvement. His firm, Elliott Associates, had minor exposure to the collapse of Lehman Brothers, leading to speculation among some Republican fundraisers that the economic crisis was to blame. Singer helped raise more than $1 million for Republicans in the current election cycle and was viewed as an important potential resource among those trying to find support for independent groups.

A spokesman for Singer declined to comment on his political activity this year but noted that his hedge fund as of Sept. 30 was up 6 percent for the year.

One Freedom's Watch adviser familiar with appeals to Singer said efforts to enlist his eleventh-hour support have gone unanswered. "Understandably," said the adviser, who spoke on the condition of anonymity because discussions with donors are confidential. "The guy's got a business to worry about."

Senior staff members at Freedom's Watch said they consider their efforts in several key House and Senate races to be a significant first step. "We have put out $30 million in expenditures, and that's nothing to sneeze at," said Ed Patru, the group's spokesman. "After Election Day, we'll measure our success based on the impact we've had on the issues that are important to us."

The slowdown in giving appears to have had a disproportionate impact on Republicans. Obama holds an enormous money advantage in the closing weeks of the campaign. His ads have been bolstered by mail and phone-bank efforts largely financed by labor unions. The AFL-CIO alone has directed more than $50 million to persuade its members to support Obama and other Democrats.

Another major source of support for Democrats has come from, which in the past had raised its money almost entirely from wealthy donors. In this cycle, the group shifted its approach, using its enormous e-mail list to raise "hard money" -- direct donations that are within legal limits and reported to the FEC. "Despite the much ballyhooed chill on 527s, there are a lot of groups with hard-money capacity," said Tom Matzzie, a Democratic operative who previously served as Washington director for MoveOn. "There's less hard money on the right."

The outside group that has spent the most on ads this cycle is the American Issues Project, the creation of another Swift Boat Veterans patron, Texas billionaire Harry Simmons. When the group surfaced, it announced $2.6 million in ads, including the first television spot linking Obama to the controversial Vietnam-War-era radical William Ayers. But the effort has tailed off in recent days.

"I don't get the impression that these guys have a ton of money," said Tracey, the media analyst. "I think it's just an unwillingness for people to plunk down big checks right now. I don't know if that money's going to show up in the next two weeks or if it's pretty much over at this point."

View all comments that have been posted about this article.

© 2008 The Washington Post Company