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The Super PAC Experiment That Bankrolled Ted Cruz

Super PACs backing Ted Cruz's presidential bid didn't just raise millions, they pioneered a new way to channel the money into his effort. The results were mixed.

U.S. Sen. Ted Cruz speaks to supporters in Hollis, New Hampshire, after his apparent third-place showing in the state's Republican presidential primary on Feb. 9, 2016.

The announcement that rolled out before sunrise on April 8, 2015, was a shocker. Allies of U.S. Sen. Ted Cruz, at that point a long shot in the presidential race, had raised a whopping $31 million in one week.

The haul, which would grow to nearly $38 million by the time Cruz’s backers filed their first federal finance reports, instantly established Cruz as a force to be reckoned within the Republican race for the White House. It was Cruz’s own piece of the “shock and awe” action more commonly associated with one of his rivals, Jeb Bush, at the time.  

Yet just as notable as the eye-popping haul was the manner in which the money was being channeled into the Cruz effort. Backers of the fledgling bid by Texas' junior senator were experimenting with a new structure that they hoped would coax money from wealthy donors by giving them more control over how it was spent.

After Mitt Romney's crushing defeat in the 2012 election, many donors to GOP super PACs were dissatisfied, feeling they got little bang for their buck and held no sway in critical decisions. Cruz's allies wanted to change that.

The Cruz effort set out to redefine the still-evolving relationship between donors and the super PACs. Instead of one PAC, four separate ones were created, all titled some variant of “Keep the Promise.” Each was funded by one or a few donors, and they would control the purse strings. 

In the 13 months following that pre-sunrise announcement, the Cruz super PACs would go through multiple iterations, multiple struggles for power and, ultimately, a consolidation that acknowledged the limits of their initial premise. As the dust settles on Cruz’s presidential campaign, which came to an end earlier this month, the super PACs are grappling with a legacy of their own.

In the unconventional structure, super PAC officials had found a model for giving donors more control — one likely to echo in coming election cycles — but also no shortage of challenges for the same reason. The man who started it all, Cruz consigliere Toby Neugebauer, ultimately spent only a fraction of the $10 million he committed to the cause, a growing source of frustration among people involved in the super PACs as Cruz’s campaign neared its end.

"I think it was the best first shot," Neugebauer said in a recent interview, reflecting on what worked — and what did not — for the Cruz super PACs. "The donors having power could work, but the donors have to agree up front on who's cooking in the kitchen." 

In the beginning

This story is based on interviews with almost a dozen people directly involved in the efforts of the pro-Cruz super PACs, including donors, strategists and other operatives. Some were granted anonymity to speak candidly about the inner workings of a super PAC universe that as of April 1 raised $62.6 million, spent $41.3 million and remained in possession of $21.3 million.

Read MoreA Few Deep Pockets Fuel Cruz, Perry Super PACs

At the center of the super PACs’ genesis was Neugebauer, a close friend of the Cruzes, son of a West Texas congressman, Puerto Rico expatriate and cofounder of Houston private equity firm Quantum Energy Partners. Hard-charging and fiercely loyal to Cruz, Neugebauer had been involved in the earliest discussions about Cruz’s presidential ambitions, along with confidants like Chip Roy, Cruz's former chief of staff in the Senate, and Jason Johnson, the chief strategist for Cruz’s 2016 campaign.

When it became clear one of the first super PACs backing Cruz — Stand for Principle, initially funded by Cruz’s college roommate David Panton — could not raise big money, Neugebauer stepped in. The model he set out to create, one in which megadonors were essentially given their own franchises, was partly a reaction to the 2012 presidential election, which ended with many GOP moneymen complaining about wasteful spending at the hands of greedy consultants.

Neugebauer's goal from the beginning, in his telling, was to "expand the brand" of Cruz, a conservative crusader who had made more enemies than friends during his short time in the Senate. "Make him more likable to a larger audience of people" was how Neugebauer would later put it.

Neugebauer ultimately secured commitments from New York hedge fund magnate Robert Mercer, who gave $11 million to start Keep the Promise I, and the West Texas fracking billionaires Dan and Farris Wilks, whose families contributed $15 million to found Keep the Promise III. Neugebauer's $10 million went into Keep the Promise II.

Those sums instantly cemented Mercer, Neugebauer and the Wilkses as the top donors to super PACs of the 2016 election cycle. Cruz embraced the cash infusion, boasting of his allied super PACs' war chests — combined with his campaign's own reserves — in some of the earliest versions of his stump speech. 

The donors having power could work, but the donors have to agree up front on who's cooking in the kitchen.— Toby Neugebauer, architect of the Keep the Promise PACs

Neugebauer told the donors to spend at their own pace, and they had discretion to put together their own teams. Mercer's daughter Rebekah would go on to serve as an emissary for his Keep the Promise I, while Jon Francis, a member of the Wilks family, would play a similar role in Keep the Promise III. 

The first major hire the Keep the Promise groups made was Kellyanne Conway, a veteran conservative pollster who had previously worked on Newt Gingrich's 2012 presidential campaign. Conway was named president of Keep the Promise I, and she was joined there by Matthew Taylor, an ad maker for Romney's 2012 presidential campaign. 

Whatever complaints super PAC officials would later have about Neugebauer's commitment to the cause, no one disputes he was instrumental in setting up the Keep the Promise network and rolling it out in a way that immediately established Cruz's ability to attract big money. Neugebauer, Conway said of those early days, "brought everyone together." 

“The money allowed them to be competitive in virtually every other state where no one else could compete with them except for Trump," former Texas GOP Chairman Steve Munisteri said earlier this month, reflecting on what worked well for Cruz's presidential effort. "And he didn’t do it on money. He did it on publicity.” 

Growing pains

By the fall, Neugebauer's involvement in the Keep the Promise network was fading, partially a result of logistical difficulties because he lives in Puerto Rico. David Barton, an influential evangelical activist and author, was brought in to lead Keep the Promise PAC, which at the time was viewed as the main vehicle overseeing the three other groups.   

What Barton discovered, according to some accounts, was an unorthodox organization struggling with communication — and perhaps more distressingly in the world of political finance — trust. Barton and others were impressed with Neugebauer’s savvy in laying the $38 million foundation and slingshotting Cruz to the front of the money race, but the follow-through was becoming a different story.

“The shock and awe was there,” Barton said. “But then you have to turn that into the ground game, the ads and the digital, and it all costs money.”

To help, Barton recruited Chris Britton, an Austin lobbyist with long experience in Texas politics — including a stint as deputy chief of staff to former Gov. Rick Perry.

Representatives of the groups began holding conference calls more regularly, going over the news of the day, gaming out strategy and, as the race heated up, hearing reports from staff in different states. In Iowa, Conway made one of her first hires in Jeff King, the son of and political adviser to U.S. Rep. Steve King of the Hawkeye State.

The air war war

As 2015 came to a close, speculation began to intensify about why the Keep the Promise groups were not moving toward TV advertising, viewed as a common function of super PACs. A Politico story suggested the campaign wanted the super PACs to start spending, though some involved in the Keep the Promise network were skeptical the story was an authentic signal from Houston. 

(Among some in the Cruz super PAC world, the only campaign officials whose cues mattered were those at the top: Johnson, the chief strategist, and Jeff Roe, the campaign manager. That would be evident later in the race, when both campaign officials would take to Twitter to try to calm the waters in the Cruz super PAC universe. Campaigns and super PACs cannot coordinate strategy under federal law.)

The shock and awe was there, but then you have to turn that into the ground game, the ads and the digital, and it all costs money.— David Barton, activist and author

In any case, the growing discussion over what exactly the Keep the Promise super PACs were up to gave rise to a new organization: Stand for Truth. Officially formed Nov. 18, the new super PAC brought together Hal Lambert, a Fort Worth investor who had been serving as a top bundler for Cruz's campaign; Josh Robinson, an Austin-based strategist who had previously worked as political director for the Republican Governors Association; and Keats Norfleet, another Austin-based hand with deep experience in state and national politics. 

"The impetus for Stand for Truth was that Keep the Promise wasn’t spending money at the time," Lambert said. "They simply weren’t spending money for Sen. Cruz."

At the time, Keep the Promise officials brushed off questions about their allegedly low level of activity, saying they were focusing on less traditional tasks for super PACs, such as building a field operation, instead of TV advertising. Conway recently expressed no regrets about the strategy, saying the Keep the Promise network was "exercising the rarest of political virtues: patience."

"If anyone can tell me an ad they remember from late fall 2015, I’ll donate $12 million to a super PAC," Conway said. Super PACs that invested in ads at that time, she added, "should've just had a bonfire with the cash." 

On Jan. 1, Stand for Truth announced it had reserved more than $4 million in TV time in Iowa and South Carolina, surprising many who had come to accept the Keep the Promise network as the main vehicle for pro-Cruz outside spending. A news release from Stand for Truth made sure to call the $4 million buy the "first major television reserve by any of the super PACs supporting Ted Cruz for president."

The formation of Stand for Truth instantly touched off suspicions among Cruz supporters because the only person publicly associated with it, treasurer Eric Lycan, had previously worked for Senate Majority Leader Mitch McConnell — Cruz's chief foil in the upper chamber. Similar concerns would surface again in the run-up to the Florida primary, when conservative commentator Erick Erickson charged that Stand for Truth was a kind of Trojan horse for the Republican establishment and donors should "shun it."

Cruz's campaign, pleased with Stand for Truth's work — and perhaps aware of the involvement of a longtime ally in Lambert — ultimately got Erickson to somewhat walk back the warning. "Based on what we've seen publicly, SFT has done great work," Johnson tweeted at the time.

Throughout much of the winter, Stand for Truth largely functioned outside the Keep the Promise network, despite some early overtures for collaboration. It ended up raising and spending more than any other pro-Cruz super PAC in the time it existed, taking in $11 million and sending out almost as much. 

Behind closed doors, there was no doubt tension between the Keep the Promise network and its splinter group, especially as it began to aggressively do what the Keep the Promise universe was criticized for not doing: TV advertising. But publicly, Keep the Promise officials repeated over and over again: We welcome any additional effort to elect Cruz. 

"Our position was I don't care," Barton said. "If you can raise money for Ted, go ahead and do it."

Up and running

By the beginning of the New Year, the functions of some of the super PACs were becoming clear. Keep the Promise I had started TV advertising after spending most of the fall focused on radio advertising and building its field operation. Keep the Promise III was heavily investing in digital advertising and voter targeting. 

Keep the Promise PAC, meanwhile, handled event hosting, often organizing rallies where Cruz would serve as a "special guest." The practice raised some questions about coordination — especially when Trump called attention to it later in the race — but officials said the process was above board: Like any group that would want to host Cruz — imagine a state Republican Party having a Lincoln-Reagan Dinner — it would call up the campaign and figure out the best time and place. 

Keep the Promise PAC was pleased with the results. It was told by pollsters that its events helped “move the needle” by as much as 4-5 points in the run-up to some nominating contests. 

An effort at rapprochement

As the nominating contests got underway, the array of pro-Cruz PACs began to sow confusion, and discussions about consolidating their efforts ramped up. At the same time, campaign finance reports were coming out that showed the Keep the Promise groups had been unable to raise significant money beyond their initial investments — all four had taken in only $1.2 million in the second half of 2015.

We were working on an airplane in mid-flight.— Chip Roy, former Cruz chief of staff

With tens of millions of dollars still sitting in their coffers, it became difficult to convince some prospective contributors that the groups needed cash. And when moneymen did decide to open up their wallets, they had all kinds of questions about which group to give to and why. 

There was also the growing expectation that Cruz would be in the race for the long haul, making an efficient super PAC organization all the more important. At about this time Cruz's campaign began gearing up for a contested convention in July in Cleveland, raising the prospect of an all-out — and increasingly costly — effort to deny Trump delegates through the final primaries on June 7. 

Those mounting realities led representatives of some of the super PACs to a Houston airport hotel in March, not long before the Utah caucus and Arizona primary. The mood was amicable, according to some present, but the pretext was clear.

"We were working on an airplane in mid-flight," recalled Roy, the former chief of staff to Cruz. "We had a flight that’s up in the air at 50,000 feet going 600 miles per hour and we have state by state rolling along."

"Our main purpose," Roy added, "was to kind of come to terms with, how are we going to bring everybody together to demonstrate unity and clarity for donors?"

What came out of the meeting and other talks at the time was yet another super PAC — Trusted Leadership PAC, perhaps the most formal effort yet to consolidate what had become a disjointed universe of pro-Cruz fundraising. Roy, who was on his way out of the Attorney General Ken Paxton’s office at the time, was named the executive director of the new super PAC. He was joined there by Kate Doner, a former fundraiser for Wisconsin Gov. Scott Walker who had been working for Stand for Truth. Alice Hanley, wife of Cruz donor and oil tycoon Lee Hanley, was made treasurer of Trusted Leadership PAC.

Despite the desire for unity, not everybody from the Cruz super PAC world was at the meeting. Neugebauer was not, and neither was Lambert, though Stand for Truth had operatives in attendance. 

In any case, Roy and others emerged from the rendezvous confident they had managed to consolidate the Cruz super PAC universe to the best of their ability. They hired one last hand to help out: Dave Carney, a longtime adviser to Perry who had worked against Cruz in the 2012 Senate race. 

Trusted Leadership PAC went on to spend hundreds of thousands of dollars in Wisconsin — where Cruz scored a breakthrough victory on April 5 — and two weeks later in New York — where Cruz failed to collect a single delegate. Finally, it invested nearly $2 million in Indiana, the state that would end up being Cruz's last stand. 

Where's Toby?

As Cruz's prospects grew grim in Indiana, attention centered more than ever on the roughly $9 million sitting in Keep the Promise II. Frustrations with Neugebauer, who for months had perplexed super PAC officials with his false starts and apparent tightfistedness, were running higher than ever.

Of the $1,016,680.06 Keep the Promise II ended up spending, $500,000 of it went to Cambridge Analytica, a Virginia-based firm heavily utilized by the Cruz campaign for its state-of-the-art voter-targeting technology. Another $300,000 was spent on Loud Door LLC, a South Carolina-based firm that says it uses “social media to conduct research on consumers who can’t be reached anywhere else.” 

With Cruz out of the race, Neugebauer could use the remaining money for some other political purpose, or take it back.

Neugebauer has responded to questions about his limited spending by saying he disagreed with the super PACs' use of negative advertising, something he believes did not work this election cycle — especially against an unconventional frontrunner in Trump. "Multiple, multiple times I offered to fund" more positive advertising, Neugebauer said. 

Yet super PAC officials argue there was nothing preventing Neugebauer, as the principal of Keep the Promise II, from taking the lead on his own positive advertising campaign. Privately, some questioned whether Neugebauer ever intended to spend the $10 million he deposited into the super PAC more than a year ago — an investment, they note, that helped spur Mercer and the Wilkses to open up their wallets. 

As Cruz's campaign reached its end, Neugebauer seemed more distant than ever from the super PAC world, according to officials who insisted it was not because he was being excluded. “At every opportunity, the door was left open for him to be involved,” said one person involved in the efforts who was granted anonymity to discuss a still-sensitive rift. 

After Cruz dropped out, Neugebauer declared his support for Trump. "Ted would've been president if Donald wouldn't have run," Neugebauer said in the interview. 

It is not entirely clear what is next for the Wilkses, who have also emerged as major players at the state level. Conway said the Mercers "will support federal candidates for federal office who they believe represent limited-government and free-market principles."

"In addition, they’re no fans of Hillary Clinton and think that she would be very bad for the country and oppose her candidacy for the presidency," Conway said. "All options are being considered and on the table.” 

As for the millions of dollars left in the super PACs' accounts as of April 1, their fate remains unclear. Kristina Hernandez, a spokeswoman for Trusted Leadership PAC, said in a statement the organization is "in the process now of closing out our obligation and communication with our donors about how their money was spent and what to do with any remaining funds."

Did it work?

In the wake of Cruz's campaign, super PAC officials have begun to contemplate the legacy of their effort and what it means for future election cycles. Few walked away with an overwhelmingly positive experience, but regardless of the occasional dysfunction, they talk of playing a revolutionary role in an election cycle more dominated by what did not work for super PACs than what did.

"At the end of the day, Senator Cruz was able to defeat 15 of the strongest candidates we have seen in generations," Roy said in a statement that highlighted how Cruz's allies "changed the role of super PACs" by not exclusively focusing on TV advertising. "The super PACs supporting Senator Cruz were able to do more with less money than all of the other super PACs combined." 

The Keep the Promise network did have a short-lived parallel in the super PACs that supported former Gov. Rick Perry, who dropped out of the presidential race in September. His Opportunity and Freedom PACs were each controlled by a single donor or donor family, an arrangement that senior adviser Austin Barbour said could work under the right conditions. 

"It’s really important in my mind that you have one central team that’s managing all of those groups," Barbour said. "When you have a bunch of different groups out there ... it’s still kind of a chaotic situation."

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