Yves here. How many ways can you spell “payoff”?
By Joshua Weitz, a research associate at the Academic-Industry Research Network and an incoming graduate student in the PhD program in political science at Brown University
Since leaving office President Obama has drawn widespread criticism for accepting a $400,000 speaking fee from the Wall Street investment firm Cantor Fitzgerald, including from Senators Bernie Sanders and Elizabeth Warren. Only a few months out of office, the move has been viewed as emblematic of the cozy relationship between the financial sector and political elites.
But as the President’s critics have voiced outrage over the decision many have been reluctant to criticize the record-setting $65 million book deal that Barack and Michelle Obama landed jointly this February with Penguin Random House (PRH). Writing in the Washington Post, for example, Ruth Marcus argues that while the Wall Street speech “feels like unfortunate icing on an already distasteful cake,” the book deal is little more than the outcome of market forces fueled by consumer demand: “If the market bears $60 million to hear from the Obamas, great.”
For industry insiders, however, the size of the deal has vastly exceeded estimates of a projected final offer. As the leading trade magazine, Publishers Weekly, reported, a week before the announcement one publisher involved in the negotiations estimated that the two books would likely garner a $30 million contract, less than half the accepted bid.
Seeking to make sense of the $65 million figure, some have pointed to the former President’s prior book sales and Clintonesque celebrity status. Since 2001, 1995’s Dreams from My Father and 2006’s The Audacity of Hope—both of which were published by Crown, a division of Random House (now PRH) owned by the German multimedia conglomerate Bertelsmann—have sold roughly 4.7 million copies, undoubtedly yielding substantial profits.
But according to industry insiders the former First Lady’s contribution is a far greater gamble. And despite the President’s successful publishing record the size of the contract remains something of a mystery. At $20 per book, sales of the two books combined would have to exceed 3.25 million copies to match the cost of the advance, and that doesn’t include necessary overhead such as the costs of materials, distribution, and marketing. As one insider stated, “no one expected it to go this high, [with the books selling for] almost double what we might have imagined…”
At this point, a brief review of the relationship between the Obama administration and the companies behind the deal may shed light on the logic underlying this extraordinary bid.
Since the merger of Penguin and Random House in 2013, PRH has been owned jointly by Bertelsmann and the British education and publishing multinational Pearson, PLC. A leading producer of education and testing materials, Pearson has profited substantially from one of President Obama’s major legislative initiatives—Race to the Top (RTTT).
Much like its Bush-era predecessor, No Child Left Behind, RTTT provides competitive funding to K-12 schools based on a range of criteria intended to stimulate higher teacher and student performance. Among the standards for receiving funding under RTTT is the adoption of Common Core (CC) testing, which, in effect, incentivized school districts to hand federal grant money over to private firms that create CC tests.
Backed by the powerful Gates Foundation and pushed heavily by President Obama and then Secretary of Education Arne Duncan, RTTT was met with widespread criticism among parents, teachers, and education scholars for its punitive and test-centric approach to education reform. In July of 2011, outrage over the initiative culminated in a widely publicized march held outside the White House, attendees of which included some of the country’s leading educators, such as Jonathan Kozol and Diane Ravitch.
Despite extensive outcry, including calls for Duncan’s resignation in 2014 from the National Education Association and the American Federation of Teachers, two groups that many regard as traditional Democratic constituencies, President Obama continued to voice support for Duncan and RTTT. When Duncan finally resigned in late-2015, Obama praised Duncan’s record, while not-so-subtly infantilizing his critics: “Arne has done more to bring our educational system—sometimes kicking and screaming—into the 21st century than anybody else.”
But if RTTT was a failure in the eyes of the country’s educators, it was a remarkable success for the testing companies. Between 2010, when RTTT first took effect, and 2014 demand for tests in the U.S. grew from $1.6 to $2.5 billion. Few firms benefitted from the rise of standardized testing in the United States as much as Pearson. According to an analysis by CNBC from 2010 to 2014 Pearson received more contracts than any other company in the industry—27 out of 128 in total. As Elaine Weiss noted in a 2013 report published by the Economic Policy Institute, in the state of Tennessee, one of the top recipients of RTTT awards, state funds flowing to Pearson increased threefold, from roughly $7 to $22 million between 2009 and 2013.
While the Obamas’ deal is unique for the amount of money involved, outsized book contracts between politicians and industries they’ve benefitted has precedent. In a recent report issued by the Roosevelt Institute, the study’s authors, Thomas Ferguson, Paul Jorgensen, and Jie Chen, argue that the mainstream approach to money in politics fails to recognize major sources of political spending. Among the least appreciated avenues for political money, they argue, are payments to political figures in the form of director’s fees, speaking fees, and book contracts. They note, for example, an apparent quid pro quo between former Speaker of the House, Newt Gingrich, and telecommunications firms:
Newt Gingrich, a major player in the critical Telecommunications Act of 1996, had a history of ties to organizations in this arena from his earliest days as a politician. He also profited from book contracts proffered by vertically integrated concerns anchored in the industry.