Consider the Michigan House of Representatives, 110 members strong. Add up all the money raised by Democratic candidates in this chamber in 2016 (about $9 million) and compare it with the proportion that went just to the best-funded races. You’ll find that 50 percent of campaign funds went to the top 10 races. On the Republican side the numbers are similar, though somewhat less pronounced: 44 percent of Republican funding went to their top 10 candidates.
Michigan is not unusual. Investing whopping and disproportionate sums in only a handful of competitive races is the norm. Why?
Political investors, both individual and institutional, confuse the political value of a race with the electoral utility of additional dollars. Some races are, of course, very politically valuable — a competitive U.S. Senate seat, for instance, in a year when the balance of power is in play. But there is a limit to how much money a campaign can spend in a useful way.
In fact, a dirty secret in my industry is how difficult it is for a campaign bloated with too much cash to spend it. These are the campaigns that give us ninth and 10th rounds of paid phone calls and so much TV time that they could qualify as a miniseries. One campaign I worked on was so flush, we joked that we should project our logo onto the moon.
The fact is once all the basics of campaign engagement are fully paid for, additional dollars have virtually no chance of influencing the result.
Meanwhile, hundreds of exceptional but little-known candidates are attempting in vain to introduce themselves to voters. As a partisan, I believe investing in these undervalued races will yield better overall returns for the political party I support, and as a voter, I believe a more balanced political environment would be better for our democracy.
What I propose is investing in campaigns following the same framework that guides financial investors toward diversification: I call it the Modern Portfolio Theory for Campaigns. Like its financial counterpart, it spreads out investments to limit risk, is optimized for long-term rather than short-term results and, perhaps most revolutionary for politics, is more concerned with the performance of the overall portfolio than with any one component (i.e., a candidate).
Instead of placing a few extremely large bets, political investors using this theory would expand their portfolios to include undervalued races and only fund top-tier races to a reasonable level. While lesser-targeted races are riskier, your marginal investment goes much further in an undervalued race than an overvalued one. If one or two of these riskier bets should pay off, you will have achieved an enormous return for a modest investment. So you will have both increased the potential upside of your portfolio and reduced your overall risk profile.
In devising this strategy, I analyzed finance data from more than 10,000 state legislative races in 10 states spanning two decades. I found that the most well-funded 10 percent of races consistently received 35 percent or more of the total campaign funding for a given chamber. In the most extreme cases, this figure was as high as 78 percent. I also found that, overall, Democrats were more likely than Republicans to concentrate their investments in a small number of races.
Adopting a portfolio strategy can yield benefits in any year, especially when combined with capping investment in overvalued races, but it can be especially fruitful in election years marked by a strong partisan wave. Democrats were able to gain 31 seats in Congress in 2006 partly because of the willingness of the Democratic Congressional Campaign Committee to pump funds into deep-red districts, some of which hadn’t been competitive in 20 years. Republicans would not probably have been able to pick up nearly 700 state legislative seats and flip 19 chambers in 2010 without the coordinated investment in red, purple and blue states alike by the Koch brothers and their spending vehicle Americans for Prosperity.
The time is right for a new approach to funding campaigns. By adopting a portfolio approach, political investors can both improve outcomes and improve our democracy.