Building to Win: Presidential Campaign Cash On Hand from 2000 to 2012 in Perspective
Today is the FEC’s third quarter filing deadline, and if you’re like us, you’ll be poring over the campaigns’ reports not just to learn what they raised, but how much they spent — and what they spent it on. The number many will look at is the bottom line: Cash on hand. How much do the candidates still have in the bank to wage successful campaigns in Iowa, New Hampshire, and beyond?
Conventional wisdom is that burn rates (the percentage of money a campaign raises that it has spent) should be as low as possible. Excessively high burn rates are thought to signal a campaign in trouble. To see whether this analysis holds up, we compiled a historical refresher on candidate burn rates through the third quarter filing period in every election from 2000 to 2012.
Across all dollars raised and spent, the average burn rate through September 30th of the year before the election was 54%. This measure is weighted to larger, more successful campaigns that raised the majority of the money in the sample. Taking each campaign as a unit, the average burn rate through September 30th was 69%.
We grouped each campaign into five groups from incumbents who won re-election to candidates who dropped out before Super Tuesday. The incumbents are truly in a class of their own: without the need to spend money on a contested primary, they had much lower burn rates: 33% for Barack Obama in 2012, and 17% for George W. Bush in 2004. This low a burn rate is probably not an achievable goal for most candidates running today.
The next rung on the ladder are non-incumbents who ended up winning the general election: the Bush and Obama campaigns four years earlier. Both were lifted by impressive early fundraising. But here too, Bush spent less than Obama — with a 33% burn rate to Obama’s 55% (58% if one considers only money raised for the primary election).
There was significant variation amongst candidates who won their parties’ nominations but lost the general election. Strong front runners like Gore in 2000 and Romney in 2012 had burn rates below 60%. Meanwhile, John Kerry and John McCain had burn rates upwards of 70% and 90% respectively. McCain had to dismantle a large campaign apparatus in July 2007 when it was clear that fundraising was not keeping up with expenses. Despite that setback and his low cash balance on September 30th, he won the nomination.
Finally, there are candidates who lost their party’s nomination, the majority in our sample. These candidates typically have higher burn rates — but mostly because they raise less, not because of profligate spending. The exceptions to this rule are self-funding campaigns like Steve Forbes in 2000 and Mitt Romney in 2008. In these cases, candidates prefer not to show their hands as to how much future activity they might fund by not self-donating more than they need to cover expenses in the current quarter, keeping burn rates high.
Next, we look at the overall amount of money raised and spent through Q3.
Through this point in 2008, the Hillary Clinton campaign had raised more money than any candidate in history — though this number ends up being slightly deceiving, as $15 million in general election money is counted in the overall total. Counting only primary dollars, the Clinton campaign raised $75 million through Q3'07 and spent $40.5 million. The Obama campaign took in $76 million in primary contributions and spent $44 million of that, notching a higher primary burn rate than the Clinton campaign.
The Mitt Romney campaign in 2008 spent more than any primary candidate in history up to this point, and had a very high burn rate. He would ultimately end up running a much leaner operation funded solely by outside donors to win the nomination in 2012.
- Cash on hand is an outgrowth of revenue, and candidates must first focus on generating the revenue they need to run a successful national operation. It won’t be realistic for lower-polling candidates to achieve as low a burn rate as the frontrunners without being able to demonstrate fundraising momentum first. For these candidates, strategic early investments might first be needed to inspire donors to give.
- Once a candidate has achieved legitimate frontrunner status (as demonstrated by polling and a significant fundraising lead over your opponents), burn rates tend to stay in the 60% range or below.
- But, burn rates versus competitors are not necessarily predictive of who wins the nomination. This was true across candidates whose path to the nomination went according to plan versus those who had a more difficult journey. McCain had the second highest burn rate of any Republican in in 2008. Obama had a higher burn rate than Clinton in 2008. Kerry had a higher burn rate than any major Democratic candidate in 2004 except for Dennis Kucinich. Gore had a higher burn rate than Bradley in 2000. In many cases, these candidates gambled on an Iowa (or New Hampshire) or bust strategy. Winning those contests solved these candidates’ cash issues for the rest of the primary season.
- Successful campaigns invest a portion of their revenue in future growth. Presidential campaigns have been called the fastest startups in the world. Part of the job of a startup is to build mass and scale early to make future growth easier, while still leaving enough “runway” if things go wrong. Investments that fall into this category could include e-mail list growth to drive future fundraising returns, a strong get-out-the-vote operation, and media optimization and analytics to relieve the budgetary pressure of the biggest line item on the budget, TV.