The real winner in the 5th Congressional District? D.C. political consultants

WASHINGTON — Journalists and campaign finance experts this month questioned how Lacy Johnson — the Republican who raised a record-shattering $12.1 million for his longshot campaign against U.S. Rep. Ilhan Omar — could have spent one-third of that total on credit card fees.

Turns out he didn’t.

Johnson and his campaign manager acknowledged in separate interviews that a large part of the more than $4 million mysteriously reported as “credit card fees” on the campaign’s election spending reports was actually money paid to political fundraising firms that helped Johnson raise money — but that took, in some cases, 70 or 80 cents for every dollar raised.

But Johnson and his campaign wouldn’t say which firms exactly, nor divulge how much they received. What Johnson would say is that he’ll never work with those firms again.

“Let me put it this way: They serve a main purpose of generating the donations,” he said in a telephone interview. “In an ideal world, people in that field would adjust the amount of money they take.”

The questions surrounding the credit card fees help bring to light how exactly Johnson — a little-known Republican running for office in one of the most Democratic leaning districts in the country — could have raised not just the most money ever raised by a candidate for the U.S. House in Minnesota, but among the highest totals of any candidate running for the U.S. House this year — not far behind congressional leaders and viral political rock stars. They also reveal previously unreported ties to a direct mail firm with a colorful past, and the migration of cutthroat fundraising tactics targeting older Americans to online platforms.

Johnson’s campaign manager Billy Grant, a Minnesota-based Republican operative, said the fees were reported properly to the Federal Election Commission, but acknowledged the ultimate recipient of much of that total was not — as the campaign has reported on official documents — the Republican donation platform WinRed. 

Grant defended the steep fundraising fees as the cost of entry into politics for a new candidate, and said he has no immediate plans to correct the campaign finance documents, having left it to their campaign treasurer to classify the expenses as “credit card fees.”

But for his part, Johnson said he wouldn’t use the Washington, D.C., fundraising firms that helped him raise that money again because he was surprised that they kept such a large portion for themselves — even as he said the fundraising gave him the best chance to advance his vision for an alternative to the Democratic-Farmer-Labor Party.

“I do question the whole culture of those national fundraisers, but it is what it is,” Johnson said. “One way for Republican candidates to gain any traction in a heavily Democratic political district is by fundraising, so you have to make the trade off between the amount of money versus commission versus going with local fundraisers who may not raise as much money.”

Prospecting

At issue is a longtime — and entirely legal — practice in politics called prospecting: A company shoulders the upfront cost of the fundraising advertising, but takes an eye-popping cut of each donation in return.

The arrangement has been an attractive proposition for candidates with no startup money, especially those running in districts that aren’t considered competitive. Omar’s 2018 Republican opponent, Jennifer Zielinski, after all, raised only about $23,000 for her entire campaign; Johnson spent more than that on one commercial shoot in September.

Yet critics have long derided the kinds of companies that offer these arrangements for preying on novice candidates with little chance of victory, while cashing in on donors — most often elderly and retired people, who give money to defeat a big-name opponent not realizing they may be squandering that contribution on impossible campaigns. 

“It’s not illegal if [the fundraisers] tell [the candidate] up front, ‘Well, we can raise you a lot of money, but it’s going to cost you a lot of money,’” said Brett Kappel, a campaign finance expert at the Washington, D.C., law firm Harmon Curran. “But as usual, the problem is the public is left in the dark.”

No doubt, Omar is one of the tallest lightning rods in politics. If she didn’t drive donations to Republicans, you wouldn’t see her face plastered all over ads linked to President Donald Trump and scores of Republicans down the ballot. So it’s not a surprise that her opponent was able to cash in on her likeness. 

Still, all that money didn’t substantially change the election outcome in Minneapolis. In 2018, Zielinski took home about 22% of the vote. Johnson upped that total to closer to 26%. But while Zielinski spent about $0.30 per vote received, Johnson burned through more than $117 for each of his votes, on par with some of the highest per-vote totals in failed U.S. Senate races this year.

What often results from these kinds of arrangements is a candidacy high on administrative costs but relatively low on spendable cash. In Johnson’s case, the campaign appears to have spent less on what could reasonably be defined as campaign activity aimed at getting out votes than it did on activity geared toward generating donations, according to a Reformer analysis of the campaign’s spending records filed with federal regulators. 

Johnson’s campaign spent $1.2 million combined on broadcast, cable, satellite and radio advertising, according to records filed with the Federal Communications Commission. Although that is a fortune for a long-shot candidate, it is much less than the amounts spent by candidates who raised comparable funds and won their elections. 

For comparison, U.S. Rep. Elise Stefanik, a Republican, raised roughly the same money as Johnson, but spent twice what he did on the air in her 2020 campaign in a competitive upstate New York district where ad rates are much cheaper. In 2018, then-first-time Democratic candidate Gil Cisneros spent $5 million of his $12 million war chest on the air near Anaheim, Calif. (Though the one-time lottery winner self-funded most of his campaign with his own fortune).

The Johnson campaign also spent $1.5 million on Facebook ads. But Facebook micro-targeting data shows the bulk of that advertising was shown to users outside of Minnesota, with splashy ads twisting Omar’s words to make them seem more nefarious, promising to “end the madness,” or pledging Johnson would “lead the investigation” into “Obamagate,” the unsubstantiated theory that President Barack Obama ordered espionage on President Donald Trump’s campaign.

For instance, according to Facebook advertising data, the campaign pumped as much as $400,000 behind one ad that ran between August and September and was shown 99% of the time to people over the age of 45 — and only 2% of the time to people residing in Minnesota.

It is not a surprise then, that at least one-third of Johnson’s donations appear to have come from people who listed their occupation as retired and more than 90% came from out of state.

Those types of high-dollar ads led users to a page on the donation platform WinRed, the Republican answer to ActBlue, where election finance records show Johnson’s campaign raised at least $7.5 million. Far fewer resources were put behind ads targeted only to users in Minnesota and linking to his official campaign website.

Another ad blasted Omar for her own fundraising scandal: Paying a firm owned by her husband, a political consultant, for work performed for her campaign, an arrangement that, while not illegal, drew ethical questions. After the election — and after making payments to Tim Mynett’s E Street Group totaling nearly $2.8 million — Omar told supporters she has cut ties with the firm in order to avoid any perception of self-dealing.

Previously, Omar had defended the relationship by saying that the campaign was paying fair market rates, most of the money given to the firm was in turn spent on media, Mynett was receiving no money above his salary and that her campaign spends relatively little on fundraising compared to how much it has raised.

The Firms

To be clear, there is no indication Johnson’s arrangements with fundraising firms are illegal or that any money went anywhere it shouldn’t have gone. FEC regulations, which are often criticized for being behind the times, don’t require campaigns to itemize payments made to subcontractors. But the fact that Johnson’s campaign reported more than $4 million as “credit card fees” to an entity that was not the ultimate recipient of that money means there is no transparency about how much of his donor money actually ended up in the hands of the fundraising firms, and which firms profited. 

WinRed takes 3.8% plus $0.30 from each donation, according to its website, so even if the Johnson campaign raised all of its money there, it would not add up to anything close to $4 million.

Although he declined to comment for this story, WinRed president Gerrit Lansing replied to another journalist on Twitter earlier this month noting that these fees are likely “agency fees,” another term for fundraising commissions. Lansing linked to the WinRed website, where it is explained that, “These are not WinRed Fees and it’s important to make sure they are reported to the FEC correctly.”

Most of those fees Johnson reported — more than $3.3 million — came in the second half of 2020, when Johnson’s campaign reported raising the vast majority of its money, or almost $8 million.

FEC records show the Johnson campaign started a financial relationship with an Alexandria, Va., based fundraising firm called Olympic Media around that time. The firm’s website describes what appears to be a commission-based service, or what they call a “zero-risk solution,” with “no more placement fees” or cost per digital impression.

The firm has also worked with other Republicans, such as U.S. Rep. Jim Jordan of Ohio and Kim Klacik, a long-shot Baltimore candidate for the U.S. House, both of whom report large amounts of the same types of fees paid to WinRed on their campaign finance records.

On the books, Johnson paid Olympic Media more than $325,000, just part of the $2 million his campaign paid to various campaign consultants. But if the firm indeed did help Johnson raise millions online with a high commission, the company’s take could be revealed to be in the millions. Olympic Media owner Ryan Coyne did not respond to a request for comment.

Grant, the campaign manager, defended the high rates paid for fundraising operations as the cost of doing business, essentially a 70 or 80% finder’s fee for identifying donors. Once a donor was added to the campaign’s list, Johnson’s team could reach out independently without having to pay the fundraiser again. Grant said the campaign raised as much as $2 million on its own once it had that list in hand.

And the reason it worked so well is no mystery: “Anytime you have a good villain, you are going to be able to raise a lot of money,” Grant said, referring to Omar.

Grant said it’s possible he or Johnson could sell that list now, too. And if Johnson decides to run again, he’d have a head start on fundraising. Johnson, for his part, said he’s not sure what he’ll do with the list, and does not yet know whether he’ll run again.

An old school direct mail firm also cashes in

Johnson’s firm also took on a decidedly lower tech fundraising operation: Snail mail. 

His campaign hired ForthRight Strategy, one of the more notorious political direct mail firms in the business. 

ForthRight Strategy used to be called Base Connect, but it changed its name after an employee went to prison for child pornography. Before that, it was called BMW Direct. Another former associate of the firm was sentenced to a year in prison earlier this year for making false statements to the FEC about his role operating scam political action committees.

Under its prior names, the company has been the subject of exposés going back more than a decade accusing it of taking on losing Republican candidates, and keeping a large chunk of the money — all the while drawing sharp criticism from fellow Republicans for sapping their donor tree.

More recently, the firm came under scrutiny for the amount of money it raised and kept from the campaigns and political action committees of former Interior Secretary Ryan Zinke. 

Despite the reams of bad press, which include former clients saying that they regret using the firm’s services, Grant and Johnson said they did not know ForthRight Strategy’s history.

In all, the Johnson campaign reported spending at least $2.8 million on direct mail fundraising, more than $770,000 of which was paid to ForthRight Strategy and two other companies headquartered in the same Washington, D.C., office building, according to FEC records. In the first quarter of 2020, Johnson spent more than two-thirds of his total fundraising haul on these direct mail firms.

Forthright Strategy’s CEO Kimberly Bellissimo declined an interview request, but defended the price of her firm’s services, noting that much of the cost is eaten up by its physical operations.

“As we have described to many reporters in many ways over the years, postage and printing make up eighty percent of the average direct mail fundraising package,” she wrote in an email. “Our clients understand the value of our approach as we have an unmatched track record of success.”

It’s unclear from campaign finance records exactly how much money the firm raised for Johnson by mail because the FEC doesn’t require campaigns to disclose the manner in which they received the donation.

Bellissimo, however, described her fundraising on behalf of the Johnson campaign as “very impressive,” but said she did not have authorization from the campaign to release the exact numbers