• by Paul Gough , September 4, 2003

A key provision of the campaign-finance reform act will severely limit the flow of some ads to TV, perhaps costing local TV stations - and the agencies who place them - up to $300 million in so-called soft money in 2004.

Local broadcasters, who are counting on a lift from political spending to tighten their ad marketplace next year, heard the sobering news during a panel discussion at Thursday's Television Bureau of Advertising fall forecasting conference. Soft money comes from top donors and special-interest groups and, while it hadn't been regulated, much of it went to advertising.

The Bipartisan Campaign Reform Act, passed last year after efforts by U.S. Sen. John McCain, R-Arizona, and Russell Feingold, D-Wisc., also restricts independent groups from using soft money for radio and TV ads that name or identifies candidates 30 days before a primary and 60 days before a general election.

Political's Share Of Rep Commissionable Billings

1994:    4.8% 
1996:    5.9%  
1998:    8.2% 
2000:   10.1% 
2002:   10.7% 

Source: Television Bureau of Advertising/Ernst & Young TV Station Rep Survey.

Interest groups spent an estimated $100 million during the 2002 elections, most of it going to TV. While it's possible that some of that spending might move to newspapers, it's more likely that the spending would move to direct mail and possibly telemarketing.

The campaign-finance reform act is under consideration by the U.S. Supreme Court, which will hear oral arguments on the case Monday. But a decision, when it comes, won't cover this year's election spending. If the rules stand, experts say it will chill some of the most lucrative revenue sources for TV stations, which receive the bulk of the flurry of last-minute elections ads.

The $350 million estimate is based on fund-raising data from the two major political parties from the last presidential election cycle, which began about four years ago. The Republican and Democratic parties raised $1.2 billion between 1999 and 2000, including $700 million in hard money and $500 million in soft money. Even though both have increased their fund-raising of hard money, the individual contributions that are now limited to $2,000 per person, it hasn't been enough to overcome the loss of soft money.

Federal Election Commission data on fund-raising by both parties in the first six months of 2003 show Democrats' revenues down 39% and the GOP down 24% because of the drop in soft money.

"If that is an indication of what we can expect with the new rules . you're looking at a loss of $360 million in total revenues," said Jan Baran, senior partner with the Washington, D.C., law firm of Wiley Rein & Fielding.

The TV industry, particularly spot sales, still expects 2004's political spending to be healthy. While the GOP presidential candidate is certain, President Bush's opponent will be drawn from between nine and 10 candidates on the Democratic side. And while a number of Senate seats are up for grabs and the entire House of Representatives, there are only a relative handful of contested races and only eight gubernatorial races that will generate substantial advertising.

"There are still a lot of questions hanging out there," said Michael O'Brien, senior vice president/regional sales at Blair TV.

O'Brien said Bush, who may raise $225 million by the time the election is over in early November 2004, will probably begin to advertise in February and stay on until the end. O'Brien's estimates was that the Bush campaign would begin with 50 gross ratings points a week in selected states, which he said was "subtle" for a politician. Obviously it will ramp up as the campaign heats up, for both Bush and his Democratic challenger.

Key battleground states, where stations can expect big spending, include Michigan, Wisconsin, Ohio, Pennsylvania, Illinois and Iowa.

"Florida we can count on," O'Brien said.

Heavily contested Senate races in Illinois, South Carolina, Georgia, Arkansas and perhaps North Carolina (depending on whether presidential candidate John Edwards wants to keep his Senate seat) will drive up ad spending there, O'Brien said. House of Representatives campaign spending is expected to be less than in the midterm elections two years ago.

The contested Senate races could translate into between 500 and 700 GRPs in the beginning with 1,200 to 1,500 GRPs or more in the several weeks before the November election in each market, O'Brien estimated. House candidates would only buy between 500-700 GRPs in the final three weeks of the campaign and only in selected markets, since the seats are more regional and not statewide like the Senate. In some of the contested gubernatorial races (including Indiana, New Hampshire, Vermont and Montana), an estimated 1,000 GRPs a week could be spent in the final weeks of the campaigns.

The status of issue-oriented ads, which have grown to a big chunk of political ad spending by independent organizations, isn't clear. Any change would adversely affect TV stations, which were worth about 1,500 GRPs to markets at high CPMs during the last few weeks of campaigns.