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October 04, 2007

How Larry George Does Business

Last month I responded to some rumors and speculations floating around about Larry George's "self-dealing" – as in dipping into the funds of campaigns he controlled to benefit himself. Unlike those who were criticizing Sen. George, I actually called him myself and talked to him. I did so because I knew him personally back when I worked in politics and based on my knowledge of him I did not believe the rumors. I have just had another conversation with Sen. George about the matter after he discovered my post and called me. After talking awhile, he told me I got a couple of things wrong in my first post about how he runs his advertising firm. So, for the record, let me describe for you how Sen. George does business, particularly with regards to his advertising agency, George Advertising. With any luck, I won't screw it up this time.

The first detail I got wrong relates to the designation of a political committee as a "candidate controlled committee," which is something new that was not in place when I was involved in politics before and not a term I recognized. So when I wrote that the alleged scandal was that "on numerous occasions, large expenditures of money have been paid by PACs controlled or partly controlled by Larry George to a company called George Advertising," I did not understand the term "controlled" in the same way that Sen. George's accusers did. I assumed they meant campaigns on which he was a designated Director.

I understand after speaking with Sen. George that a "candidate controlled committee" is a committee for which major decisions are made by someone who is a candidate. Transcripts from a hearing on the matter show that the new designation was intended to prevent candidates from hiding the sources of contributions by controlling several different committees and laundering money through them and to prevent candidates from claiming receipt of loans from big contributors when those "loans" were not intended to be repaid and were actually contributions. No doubt, Rep. Derrick Kitts's use of campaign funds for personal expenses also played into the passage of the bill.

In Sen. George's case, his advertising firm is run in such a way that a good number of his clients' committees needed to be classified as candidate controlled committees even though he was not a board or committee member or a Director for those committees. This was not, as has been alleged, a matter of Sen. George being in charge of several campaigns and hiring his own firm to place advertisements so he could profit from the campaigns he was running. It was a matter of several campaigns hiring his firm and, because of his habit of paying significant portions of those campaigns' normal expenses out of the commissions he was required to charge them, having to list him as a controlling party.

You're probably shaking your head in confusion, so let me explain.

In my September post, I wrote:

And on the campaigns he controls, when he hires himself to place advertising he doesn't make any profit at all. He does the work at cost. His firm is simply able to get better rates, so hiring himself saves the campaigns money.

This was partly right, but also partly wrong, as Sen. George was kind enough to explain to me.

Here is how it all got started. Back in 1994, Larry George was working for Oregonians in Action, which was using outside consultants for its campaigns. The group was having difficulty obtaining the information it wanted from its consultants related to how much was being spent on advertising and how much was being paid in commission. Additionally, the campaigns the group was running were too small to be able to afford the big consultants and firms. Larry decided to start George Advertising as a way to facilitate ad buys without having to use a consultant.

Those who haven't placed ads may not realize that when you buy radio advertising, the person who places the ad gets a 15% commission. Most of OIA's ad buys were in the range of $200,000 back then, so George Advertising would get a $30,000 commission, which Larry would give back to OIA as a contribution. Before long he began taking on other nonprofit clients, which generated a reasonable income for him and still enabled the campaigns to keep their costs down. When he ran for office, he disclosed this information. Today, he says, George Advertising pays him about $2000 a month in salary out of the 15% commissions the firm is paid to place advertising for various campaigns. The rest of the money the firm gets from its 15% advertising commissions is spent paying the salaries of 7 to 9 campaign staff and paying hard costs, such as the fees for the firm creating the ads (about $70,000 so far, he says). The Secretary of State considers his selection of the creative firm, his placement of the ads, and his salary payments to campaign staff to be a directorial role. These expenses, therefore, must be listed as in-kind contributions by George Advertising to the campaigns that are the beneficiaries of his generosity -- and the campaigns must be listed as being controlled, at least in part, by him. This is because he is offering campaigns more than other consultants traditionally offer. So I was correct in stating that he gives back to the campaigns what they pay him as a commission for placing the ads. I was incorrect in that I did not note that he takes a small salary for himself out of those commissions - but let me say that any reasonable person could see that a total $2000 salary each month, taken from the combined commissions paid by all his clients, is truly negligible.

Those who accuse Sen. George of self-dealing in his involvement in Measure 49 simply aren't thinking logically. Even though he was in a position to make a good deal of money from the referral of Measure 49 to the voters, he voted against the referral. What many people don't know is that he was not clamoring to take the campaign on. Only after Mark Nelson turned it down was Sen. George approached, and he only agreed to it because he didn't want to let people down. Like me, Sen. George is very attuned to the many forgotten real Oregonians who have been seriously harmed by regulatory takings in this state and who are watching their first ray of hope – Measure 37 – slip away from them. Like me, he is disillusioned by the dishonest effort that resulted in Measure 49, which is not going to accomplish what the public is being led to believe it will accomplish.

You probably won't hear much from Sen. George in response to the ridiculous allegations against him because, like me, he's much more interested in spending his time doing things to make the world a better place and not so much interested in being on the front page of the newspaper. In fact, when he called me today it wasn't to ask me to write a correction – I'm not even sure if he wants me to write this correction. But considering my own belief that Sen. George is one of the good guys, I'm not going to sit by quietly while he is personally attacked.

By the way, I don't intend to engage in a drawn out debate over Measure 49 and how it was conceived because I'm just too busy to invest in an argument where I already know I won't change anyone's mind. But if you all want to discuss it here, be my guest.

Posted by Becky at October 4, 2007 03:19 PM