By Christopher Glazek
December 14, 2017

Everyone bemoans the huge gobs of money swirling through politics. We grouse about K Street lobbyists and backroom deals and the grinding cynicism of TV campaign ads—all fueled by historic levels of outside spending on elections.

But the truth is, very few big donors are getting much bang for their buck. Witness Tom Steyer: When the hedge fund billionaire turned Democratic sponsor sank $10 million of his personal fortune into a television ad demanding the impeachment of Donald Trump, the blowback from his erstwhile comrades was swift. One Democratic congressman called the ad “not timely”; another called it “not helpful”; Nancy Pelosi said, “It’s not someplace I think we should go.” And Donald Trump himself taunted gleefully that Steyer “never wins elections.” Armed with this feedback, Steyer doubled his buy to $20 million and launched a matching billboard campaign in Times Square.

But the critics had a point. While Steyer, a committed environmentalist, is one of the biggest donors in contemporary politics, his return on investment has been abysmal. In 2014, he spent more than $50 million on TV ads for seven Senate and gubernatorial campaigns. His success rate? Just 43%—worse than a coin toss.

As this is Fortune’s annual Investor’s Guide, we thought we’d offer a bit of constructive counseling to the Steyers of the world. As with any market, there are good political bets and bad ones—and plenty of arbitrage openings for wily investors of all ideological stripes. If you’re going to play kingmaker, you might as well proceed with sophistication.

Forget the White House

In business, it’s a truism that competition drives profits to zero. In politics, though, capital is often attracted to highly contested, splashy races—where marginal dollars are unlikely to make much difference. In the biggest races, particularly the presidential, most spending goes to television ads, which famously obey the law of diminishing returns. TV is great for building name recognition, but its value decreases sharply as ads approach saturation levels.

The smart money in politics, as in business, seeks to entrench advantages. Perhaps the quintessential example of canny electioneering took place in 2010, with Republicans’ Redistricting Majority Project (Redmap). That year, a small group of donors, including the U.S. Chamber of Commerce and a pair of tobacco companies, spent $30 million on several dozen state legislative races. Though unglamorous, those seats held the key to congressional redistricting. For less than the price of a mid-tier Senate campaign, Republicans that year flipped 20 legislative chambers, achieving unified control of 25 state governments. Those gains enabled the GOP to draw aggressive gerrymanders, helping to shore up their House majority even during cycles (like the 2012 election) when their candidates won fewer votes.

Buy an Issue

The key to spending money effectively in politics, says Sean McElwee, a left-wing political analyst based in New York, is to ignore high-profile races in favor of “structural interventions” that fundamentally change the state of play. The best recent example, he says, is the business-backed push by Republicans to pass Right to Work laws in states like Michigan, Missouri, and Wisconsin. The laws, which limit dues collection, hobbled many unions—and in turn throttled a crucial funding stream for state Democrats. A similarly effective strategy for progressive donors, says McElwee, could be pushing for voting rights restoration for ex-felons. Not every state bars citizens from voting after serving a criminal sentence, but in those that do, the impact is huge. In Florida, for example, it affects 1.5 million—10% of the voting-age population in a crucial swing state.

Target Wisely

For the GOP, as the 2018 elections loom, consultant Chris Jankowski says Republican donors will need to think creatively to identify opportunities in what is expected to be a bear market for the party. Jankowski, who masterminded Redmap in 2010, recommends tracking concentrations of college-educated voters to inform a strategy of triaging vulnerable incumbents while finding places to play offense. Districts in pricey media markets with lot of college graduates—like the Orange County, Calif., seat held by Darrell Issa—are likely to be money pits. On the other hand, there are ­areas with large numbers of working-class whites who voted for Trump in 2016 where the GOP may be able to unseat Democratic incumbents. “If you’re an outside donor,” Jankowski says, “you have to look at a seat as a seat and be honest about the demographics.”

On the Democratic side, a clear-eyed strategy may require looking beyond candidate races. Stephen Wolf, elections analyst at the liberal website Daily Kos, says persuasion advertising is less effective in partisan races because, in a hyperpolarized climate, few voters are actually persuadable. Ballot initiatives, on the other hand, are nonpartisan, and are more likely to register an impact from ads. Wolf says proposals that expand the franchise—like automatic voter registration—have a good electoral track record, and could strengthen Democrats’ hand in future races.

That kind of slow-burn advocacy, in pursuit of long-term dividends, isn’t as sexy as traditional campaign donations to charismatic candidates. But the smart money knows that politics isn’t about how well you play—it’s about how well you stack the deck.

A version of this article appears in the Dec. 15, 2017 issue of Fortune with the headline “For Most Donors, Politics Is a Lousy Investment.”

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