Thursday, February 07, 2008

Clinton Campaign Finance Plan Showing Cracks

In light of the recent news that according to Time, some senior Clinton staffers are working without pay comes at a rough time for Hillary and only adds to her vulnerability. Other reports indicate that a staff shake-up is imminent.

Apparently the cash crunch is on in the Clinton camp. Campaigns may go through this every once in a while (McCain did), but this news is more troublesome as it comes on the heels of three other items that further expose the vulnerability of Clinton campaign finance plan:

1. Reports indicate that Hillary Clinton has loaned her campaign $5 million of her own money.

2. Obama raised $4.2 million on the day after Super Tuesday--in one day.

3. Obama campaign reports that it is on the way to raising another $30 million in the month of February. (They reportedly raised $32 million in January).

What is coming home to roost for Hillary Clinton is her fundraising strategy vis a vis Obama. Several items are working against Hillary right now. First, she relied heavily on high dollar donors. This is not an unwise strategy to start with, but without a small donor pool to continually infuse funds into her account, there is a finite limit to the number of high dollar donors can do for you. Many of her donors are maxed out, meaning that they can give no more money to her primary campaign. Her early strategy of raising big money for the primaries and raising money for the general election was based on the premise of inevitability. That premise no long appears to be accurate as her performance at the polls is not matching her early expectations nor the expecations of her potential donors.

However, Obama has a much better strategy in looking for lot of smaller donors. He has substantially more donors in each of the reporting periods that Hillary Clinton. What this means is that his donors are not maxed out and he can return to them again and again for smaller donation to continue to fund his campaign.

Just to compare how much more reliant on smaller donors Obama is, through the end of 2007, Hillary Clinton raised $17,796,353 out of $115.74 million (15.37%) in donations of less than $500. Obama on the other hand, raised $37,453,197 out of $101.4 million (36.92%) in smaller amounts, well over twice what Hillary raised. Obama has proven that relying on smaller donors is helpful in the longer run. As he gets more success, those smaller donors begin to believe in him more and contribute more money, in smaller amounts.

The second financial matter working against Hillary is her debt load. At the end of January, Obama owed $792,681 in debts, Hillary Clinton owed $4.987 million. As she is going to loan her campaign $5 million, she will have no doubt more than doubled her debt load on her February 20 FEC report. The more debt a campaign collects, the more difficult it is for the campaign to present a picture of success. With nearly $5 million in Accounts Payable, the Clinton campaign is running into real problems. Keep in mind also, that should she lose the nomination, she will have to return all of the general election money she has raised. Unless the individual donor to her general election campaign has not maxed out to the primary, she cannot use any of the general election money to pay off her primiary election debts.

Third and finally, is the aforementioned general election money. Obama origianlly asked the question of the FEC if he could raise money for the general election and hold it escrow. When the FEC said yes, a lot of campaigns started collecting, none more than Hillary Clinton. When she was the "inevitable candidate" that was OK. But she isn't any longer and has millions in funds tied up in the general election fund that she cannot use. As an example, in the last quarter of 2007, Obama had receipts of $23.5 million, only $920,000 (3.9%) of that was designated for the general election. by contrast, Hillary had $27.33 million in receipts, of which $3.21 million (11.7%) were designated for the general election.

When Hillary Clinton was considered the inevitable Democratic candidate, she created a campaign funding plan based on that inevitability. This is, of course, a very rational behavior. But what she didn't do was shift her campaign when Obama surfaced as a real challenger. Whether this was because they ignored Obama for far too long or they continued in the belief that she was still going to win doesn't matter. The fact is that her fundraising strategy is costing her now at a time when everything seems to be going right for Obama. He is winning primaries, and sticking close in those primaries he loses, collecting delegates and raising money hand over fist. Going into Ohio, Texas and the next round of states, Obama will have the money to compete, while Hillary's money sits in an escrow account, unable to help her in any way.

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