McCain, Obama and the Finances

Senator Barack Obama has opted out of the public financing system in his contest for the U.S Presidency, and John McCain has decided to stay in the system. It appears that Obama may have about $250 million to invest in the months of September and October, and McCain may have only about $85 million.

Should McCain be afraid? No and Yes.

No, because I do not think that Obama's financial edge will do much for him in advertising (traditional and non-traditional) for his candidacy and causes. The reason is simple -- time is short, and there will be galore free publicity. Here are some ways that Obama may use his financial resources to increase the scale and scope of advertising. Let us look at various elements of this advertising.

First, Obama can and will probably advertise in almost all the 50 states -- even as his campaign will concede that several states like Alaska have not voted for a Democratic candidate for a very long time. The goal of this exercise to merely scare up McCain's campaign and force him to spend some of his valuable resources -- money and time -- in some of those states lest he should lose. Will this be effective? I rate the effectiveness about 3 on a 1-10 scale (10 being most effective) because when push comes to shove McCain will not divert his resources (he cannot afford to) and thus would call the bluff (not out of choice but out of necessity.)

Second, Obama can use micro-segmenting and try and use different media for diffusing his image. Money provides that luxury. Obama can also try non-traditional approaches and media.

Will be this an effective strategy? Better than the 50-states strategy but not overwhelmingly so. I would rate this strategy to be about 5. The reason is simple. The Presidential race will get plenty of free media coverage from networks, cable channels, print media, blogs, u-tube productions and those Presidential debates. Additional reach -- over and above these -- is likely to have marginal impact. Further, the content/message of the candidate does matter.

The message will determine the basic positioning of the candidate, and no amount of volume of reach can necessarily change that positioning. Two examples of this are: one, though Barack Obama invested thrice as much as Hillary Clinton in Pennsylvania Democratic primary and twice as much in Ohio, the ultimate preference numbers did not change from the forecasts three weeks before the actual voting; two, with less than $1 million investment the 'Swift Boat' advertisement against John Kerry was devastatingly effective. In the first case, the message was the same but in the second case, the message was sharply different and new (whether that was true or not is besides the point -- further, since Senator Kerry did not effectively and immediately repudiate the attacks the message assumed a level of truthfulness as a default.)

Final aspect of this element is that Obama is likely to receive somewhat of a negative coverage from the mainstream media for his rejection of public financing -- this is not huge but one cannot ignore the word-of-mouth value of major networks and newspapers. In this case, the word-of-mouth effect would be negative.

Yes, because Obama might gain a very substantial advantage in voter registration, and mobilization with paid staff and localized promotion and patronage. It takes almost one-on-one to persuade a voter to register, and then actually vote on the election day. The upside of such voter mobilization is monumental. Particularly when the enthusiasm for McCain's candidacy is somewhat muted thus far. For example, in the recent USA Today-Gall Up survey 61% of Democrats said they were more enthusiastic than usual about voting in this year's election, while just 35% of Republicans said that.

Obama can employ this vast resource to mobilizing voters through registering new voters and individual contacts -- paid staff (and volunteers) knocking on the doors, telephonic calls, mobilization on the day of the election. Here, the resources can make a very big impact. I would rate the potential effectiveness of this approach about 7. There is substantially higher marginal benefit to be achieved here.

For illustration, let us examine Ohio (20 electoral votes.) In 2000, Al Gore lost the state only by about 350,000 votes even without any campaign investment. In 2004, John Kerry lost Ohio by less than 120,000 votes. If only Kerry had mobilized 10 extra votes in every precinct in Ohio, he would have won Ohio and the Presidency. Obama can pour his resources in the ground game in Ohio and quite possibly win it given the current sour political climate. Similarly, Kerry lost New Mexico and Iowa by less than 20,000 votes each -- and that can be easily overcome with strong election-day mobilization. In a state like Georgia where about 600,000 African-Americans have not registered to vote are rich Obama-votes. If they can be mobilized to register to vote and actually turn up to vote, Obama can put Georgia in play. In Florida, more than half a million black registered voters stayed home in 2004. Hundreds of thousands more African Americans are eligible to vote but not registered.