The money factor: How big will Obama's advantage be?

The conventional wisdom of the general election campaign has long been that Barack Obama would massively outraise John McCain and bury him under advertisements seeking to define him. This financial advantage could also be used for Obama to expand the electoral map and test McCain's vulnerability in states like Texas, Montana and Georgia that are not expected to fall to the Democratic side, potentially forcing McCain to defend his turf with resources he could have spent elsewhere.

Indeed, Obama's prodigious fundraising ability terrifies Republicans, who are worried about being swamped under the Senator's machine. If the more than 1.5 million donors who have contributed to Obama's primary campaign give just $100 to his general election effort, that already represents more than $150 million -- and you can be sure that many will donate much more. Some are already mentioning the possibility of Obama raising more than $300 million just for the general election, a stunning sum to be able to spend in just over two months. With McCain assured of choosing public financing, he will only have $85 million to spend in the same time period, a significant difference that would make it hard for him to survive the Democratic onslaught in key swing states.

But as the general election is kicking into high gear, it is unclear just how significant Obama's advantage will be. In fact, there are a number of question marks about both campaigns' fundraising, plans and abilities. (Keep in mind that this discussion concerns only the general election campaign, i.e. the two-month period between the conventions and the general election. Up until the end of August, the campaigns will use primary funds and Obama has a clear advantage there although McCain has been picking up the fundraising pace.)

McCain and the FEC: The Republican's fundraising has been at times too anemic and the GOP base is too disgruntled for him to take the risk of forgoing public financing -- and keep in mind that no candidate has done so until now, underscoring the extent of the gamble. But here there is the first question mark: Will McCain be able to receive these funds? The FEC needs to approve his request and for now that committee still does not have a quorum to take any such decision. The Senate stalemate over new appointments that was at the origin of this situation got partly resolved mid-May, but there still have been no new votes on appointments.

Another question is whether the FEC might attempt to punish the McCain campaign for not using public funds in the primary despite using the promise of these funds to secure grants from banks at the end of 2007 (more details about this controversy here). The FEC was not able to rule on this matter because it lacked a quorum and McCain used the opportunity to spend money over the limits that are allowed for candidates who accept public financing.

The RNC: The money that McCain should be able to raise but is not is flooding to the RNC. Keeping up with tradition, the national Republican party is massively outraising its Democratic counterpart. The RNC finished the month of May with more than $40 million in the bank compared to more than $4 million for the DNC. Since most of the RNC's funds help the Republican nominee in a presidential year, this is giving the Republicans hope that they will remain roughly on par with the Obama campaign. Their calculation is that the current cash-in-hand of the respective campaigns added to that of the DNC and RNC has the two parties at the same level.

Of course, there are a few problems with this analysis. For one, the reason Obama does not have that significant a cash-in-hand advantage over McCain is that he has been spending massively to distance Clinton (spending that will come in handy in the fall since a lot of it consists of ads in states like PA, OR and even MT, which the campaign seems interested in contesting). As we saw in our analysis of Obama's general election potential, we are not talking about a $35 million deficit (which would not be that dramatic compared to historical precedents) but one that would surpass $100 million -- potentially even $200 million. There is very little the RNC could do to keep the McCain campaign afloat under this scenario.

Obama and public financing: The final question mark might be the biggest one of all: Is Obama really still considering taking public financing? The McCain campaign has long been pressuring the Democrat to respect what they call as his pledge to take public financing if McCain does. Obama had taken no such pledge but had said that he would "aggressively pursue an agreement" though the GOP believed it could make him look bad. Ever since it became obvious how big a financial advantage Obama would have, public financing seems to have been taken off the table.

Yet, news broke this week-end that Obama left the door open to accepting public funds and thus spending only $85 million from the end of August to Election Day. Obama said he will accept public financing if a deal can be struck in which the RNC would curb its spending. "I won't disarm unilaterally," he added. As we saw above, the RNC's massive financial advantage over the DNC would mean that Republicans would have much more money to spend if both campaigns limited themselves to $85 million. But given that Obama is looking into a massive financial advantage if he opts out of public financing, entering a binding agreement to not spend more than his opponent would constitute a wasted opportunity, however much he convinces the RNC of curbing its spending.