Kenneth P. Vogel is chief investigative reporter at Politico and author of Big Money: 2.5 Billion Dollars, One Suspicious Vehicle, and a Pimp—on the Trail of the Ultra-Rich Hijacking American Politics (PublicAffairs).

An excerpt from Big Money: 2.5 Billion Dollars, One Suspicious Vehicle, and a Pimp—on the Trail of the Ultra-Rich Hijacking American Politics.

***


It was a dreary Pacific Northwest evening in February 2012, and President Barack Obama’s mood matched the weather. Despite being among supporters who had gathered in a stunning modernist mansion in Seattle’s eastern suburbs, he seemed irritated. Pacing in front of towering 25-foot-high windows that offered a sweeping view of a rain-spattered Lake Washington, he rattled through a short pro forma speech about how his administration was working to help struggling Americans through “the toughest three years economically since the Great Depression.”

Tickets for the speech—a fundraiser for Obama’s reelection campaign—cost $17,900 apiece, so it was unlikely anyone in the small crowd gathered in Medina, Washington, was going to end up in a breadline anytime soon. In the living room of the hosts, Costco cofounder Jeff Brotman and his wife, Susan, Microsoft founder Bill Gates—the richest man in the country—leaned against a black grand piano, while others, including fellow Microsoft billionaire Steve Ballmer, were scattered about, some standing with their backs to muted off-white walls decorated with colorful bursts of abstract expressionist art. They listened attentively to Obama’s speech, which lasted all of 16 minutes. But they really perked up when he finished and the traveling press pool was escorted from the room, which allowed them to talk candidly with the president.

( Sign up for Politico Magazine's Friday Cover email)

In their private question-and-answer session, Obama let his guard down and eventually shared some thoughts that revealed more about his view of American politics than perhaps anything he said publicly during the entire campaign. Election Day was still more than eight months away. But Obama, in a previously unreported riff, signaled surrender on one of the fights that had drawn him to politics in the first place: the effort to limit the flow of big money. It was a remarkable concession, one that would have stunned the campaign volunteers who believed so deeply in his promise to change the way politics works. It wasn’t just that he was admitting that his own election prospects would be disproportionately influenced by super-rich donors like those he was addressing. He had already done that 11 days earlier, when he blessed a so-called super PAC collecting million-dollar checks to boost his reelection. What really distinguished his remarks to Gates and company from his carefully calibrated official position was the admission that the grassroots, people-powered politics he had long glorified might never again trump the swelling political buying power of the very richest donors.

“You now have the potential of 200 people deciding who ends up being elected president every single time,” Obama told the group in response to a question about the 2010 Supreme Court ruling in a case called Citizens United vs. Federal Election Commission, which gutted campaign finance restrictions and marked the beginning of a new big-money era in American politics.

Obama and Melinda Gates in 2011. | Getty

Unless things changed dramatically, Obama predicted, “I may be the last presidential candidate who could win the way I won, which was coming out without a lot of special-interest support, without a handful of big corporate supporters, who was able to mobilize and had the time and the space to mobilize a grassroots effort, and then eventually got a lot of big donors, but started off small and was able to build. I think the capacity for somebody to do that is going to be much harder.” He continued, “In this election, I will be able to, hopefully, match whatever check the Koch brothers want to write,” referring to the billionaire industrialists Charles and David Koch. “But I’m an incumbent president who already had this huge network of support all across the country and millions of donors. I’m not sure that the next candidate after me is going to be able to compete in that same way.”

You now have the potential of 200 people deciding who ends up being elected president every single time.”

Obama turned to face Gates, who stood awkwardly, his hands stuffed in his suit pants pockets. “And at that point, you genuinely have a situation where 10 people—hey, you know, Bill could write a check.” And, Obama pointed out, it wasn’t just Gates, whose fortune, then estimated at $61 billion, Democrats had been hoping to tap in a big way. “Actually, there are probably five or six people in this room,” Obama said, gesturing to Ballmer and others, as nervous laughter spread through the crowd. Obama plowed ahead insistently, eyebrows raised, his voice rising with agitation as he stepped toward the donors. “I mean, there are five or six people in this room tonight that could simply make a decision—this will be the next president—and probably at least get a nomination, if ultimately the person didn’t win. And that’s not the way things are supposed to work.”

The leader of the free world—the man who had built so much of his identity around the idea that average people could band together to change the world, the politician who once boldly declared that it was time to take government back from “the cynics, and the lobbyists, and the special interests who’ve turned our government into a game only they can afford to play”—had become one of the biggest cynics of all. Here he was, freely admitting that American politics had fundamentally changed in a way that made it, at the highest levels, a game for the ultra-rich. And he was right.

***

Of course, the richest Americans have always used their fortunes to try to tilt the nation’s political landscape to their liking. The robber barons spent unknown millions financing William McKinley’s 1896 presidential election. Insurance magnate W. Clement Stone invested $4.8 million helping Richard Nixon win the White House—twice. And billionaire currency trader George Soros spent $27 million trying to elect John Kerry in 2004.

Having tracked the flow of money into politics as a reporter for more than a dozen years, I’d heard plenty of hyperbolic predictions from self-styled reformers like Obama. From their perspective, the latest developments in campaign finance law always seemed to be threatening the very fabric of American democracy by empowering rich donors or special interests. Mostly, though, the system self-corrected as Congress, regulators, or judges closed down loopholes, and democracy survived.

But this time I saw that the cresting wave of big money powered by the Citizens United decision was truly altering the very character of American politics. Sure, there were still potential marginal changes that could come from lawsuits, court rulings, bills and regulatory processes that were pending even as this book was going to press. But Obama’s judgment was sound: A new political reality was here to stay.

It’s not just that the total sums pouring into our politics are greater than they’ve been at any other time in our nation’s history—though that is undeniably true. Rather, it’s that the spending is fundamentally changing how campaigns are run, which issues are debated and which candidates represent their parties. In past elections, most major donors boosted candidates or causes closely aligned with the Democratic or Republican establishments. Now it’s just as likely that the biggest checks will be spent bucking the system (witness the Tea Party movement). At a time when wealth is increasingly coalescing in the bank accounts of the richest 1 percent of American citizens, members of this mega-donor community—and the consultants who spur them on—are wresting control from the political parties and their proxies. In a perverse kind of way, the new system is more democratic, but only for those with the cash to buy in.

The 2012 election was a tipping point in this evolution—the first in the modern campaign finance era in which independent groups like those powered by the mega-donors spent more money, $2.5 billion, than the political parties themselves (which spent $1.6 billion). Some of the implications of this trend will likely take years to become apparent, but it has already profoundly reshaped the political landscape. The parties are losing the ability to pick their candidates and set their agendas, as fewer and fewer politicians rely on the financial support of their party to win. In fact, it can be preferable to have the backing of a sugar-daddy donor or a group with deeper pockets willing to spend unlimited cash to fight the party.

As Obama said in Medina, it no longer requires an army of supporters to make a serious presidential candidate—just a handful with enough zeros in their net worth. Heck, it only took one sugar daddy apiece to allow Rick Santorum and Newt Gingrich to make a messy and prolonged race out of the 2012 Republican presidential primary.

Just what is it that drives these donors to keep giving? Among the motivations of these guys—and they are mostly (across both parties) men, mostly older, and largely white—are passion, ego and in some cases financial self-interest, though the new big-money politics is no way to boost profits. One uniting factor in this gilded club is a political junkie’s love of the game. They may be true believers in a cause or a candidate, but politics is also their hobby. They resemble less robber barons than a wealthy class of sports junkies who plunk down hundreds of millions of dollars to buy a professional team. In fact, there’s a good bit of overlap between team owners and political donors. Los Angeles Kings investor Phil Anschutz and Arizona Diamondbacks owner Ken Kendrick regularly attend secretive mega-donor conferences organized by the Koch brothers, while New York Jets owner Woody Johnson is a leading GOP donor, as is Joe Ricketts, whose family bought the Chicago Cubs in 2009. Big Democratic donors include Peter Angelos, who owns the Baltimore Orioles, and George Soros, who owns a stake in Manchester United and tried to buy the Washington Nationals.

Like their fellow 1-percenters patronizing sports, it’s usually not enough for political backers to merely cut the checks.

Like their fellow 1-percenters patronizing sports, it’s usually not enough for political backers to merely cut the checks. Many seem almost pathologically compelled to try their hand at managing aspects of the game better left to professionals. And just as history is rife with examples of sports owners whose meddling has kept their teams mired in chaos near the bottom of the standings, the mega-donors playing the political field have in many ways wrought chaos on American politics. But that seems only to have emboldened them to try harder in the next election. The big-money game is only just getting started.

Here’s what I saw when I tried to infiltrate it.

***

It was 105 degrees on a late April afternoon in the California desert town of Indian Wells as several dozen guests trickled into the Renaissance Esmeralda Resort hotel. Despite the heat, the men were wearing slacks and long sleeves, and sweating under sport coats. They were older and almost entirely white, and they had that well-kempt look that only privilege can bring. It was clear they were all together, both because they wore small black tags engraved only with their names and because they stuck out conspicuously from another set of guests who were about a third their age and were toned, tanned, tattooed and quite fond of the poolside bar.

Conference attendees gathered in the resort's "Stir Lounge."

The boozier crowd was in town for the spring 2013 Stagecoach country music festival. The better-groomed group had been invited by the billionaire industrialists Charles and David Koch to attend the latest in a running series of secretive political gatherings of the big-money conservative elite. Since 2003, twice a year the Koch brothers have brought together some of the top Republican politicians in the country, leading political operatives and a hundred or more of the party’s most generous donors for closed-door “seminars” on how, as an invitation to Indian Wells put it, “to advance a plan to defend our free-enterprise system.”

I had decided to travel to the California desert to try to get as close as I could to some of the most important—but least-known—donors and operatives in politics. My aim was to get a sense of whether the Kochs and their donors were discouraged by the 2012 election six months earlier. After all, their political network had spent an estimated $400 million—an astounding and historic sum—going into Election Day, mostly beating up on President Barack Obama and his Democratic allies in Congress. Yet Obama had won handily and the Democrats gained seats in Congress.

But the election seemed not to be weighing on the Koch guests congregating in the hotel’s eight-story atrium lobby before the seminar’s opening dinner. One after another they made their way down a grand, curved double staircase built of tropical African hardwood, as if arriving for their coronation into politics’ most elite ranks. Some rimmed the lobby bar, while others gathered in a private lounge. Hotel and Koch security roamed the lobby anxiously and stood sentry by the double glass doors to the lounge, talking through earpieces and watching over their prized guests. State troopers buzzed about—a sure sign that governors were present.

I tried my best to blend in, pulling up a seat at the bar next to a middle-aged fellow with the creased tan skin and shaggy blond hair of an aging beach bum. He was not, in my best estimation, a likely Koch seminar participant. Turns out he was a marketing executive for Toyota, the main sponsor of Stagecoach, and he wasn’t particularly talkative. We watched the end of an NBA playoff game, and I tried to make small talk during breaks in the action while keeping my eyes peeled for any circling big-name Republicans. I feigned disinterest in a conversation that Sen. Ron Johnson of Wisconsin was having with a group of donors as they walked by. Ken Ellegard, an Arizona car dealer and Republican donor, sidled up to the bar next to the Toyota marketing guy and me and ordered a vodka soda with a splash of cranberry. The conservative pundit Erick Erickson pulled up a seat at the far end of the bar and ordered food. Behind us, South Carolina Gov. Nikki Haley joined a small group at a high-top table near the bar. Nursing a glass of red wine, she held court for an hour about politics and stock car racing.

“That’s the governor of South Carolina,” I informed the Toyota guy in hushed tones, perhaps out of a subconscious desire to enlist an ally in my reconnaissance. I told him he was surrounded by masters of the universe, whose wealth the Koch brothers hoped to tap to reshape American politics, and that I was a reporter hoping to learn about their exclusive world. “The only Koch I know is Coca-Cola,” the Toyota guy said, shaking his head and chuckling (the brothers’ last name is pronounced “Coke”). Turning back to his cabernet, he conceded it was a relief to find out why everyone else was so much better dressed.

The point of the dress code is to suggest the aesthetic of an investors’ conference. And that’s pretty much what the Koch seminars are—political investors’ conferences. For politicians and operatives, invitations are coveted. You get the closest thing to an endorsement from Koch World, plus a chance to go fishing in a stocked pond full of some the biggest donors in the land. It is the Kochs’ ability to pool donations from wealthy attendees—rather than just Charles’ and David’s personal fortunes (estimated at $36 billion each in 2013)—that has put them among the leading forces in the increasingly competitive world of big-money politics. The more cash the Koch political network could raise in Indian Wells, the more influence it would have in setting the course for the then-rudderless Republican Party. Among the attendees at Indian Wells were Sens. Ted Cruz of Texas and Rand Paul of Kentucky and Govs. Bobby Jindal of Louisiana and John Kasich of Ohio, all prospective contenders for the party’s 2016 presidential nomination.

Just like an investor conference, the Indian Wells gathering included presentations from experts on a range of subjects: how to use elaborate databases to mobilize voters. How to craft messages that appeal to young, female, and Hispanic voters (though in Indian Wells those demographics appeared to be represented primarily by the hotel staff). How to recruit and train candidates who adhere to the Kochs’ small-government, anti-regulation philosophy.

One panel, moderated by Greta van Susteren, a top host on the conservative Fox News network, exposed the philosophical divide between the business conservatives and the fiscal hard-liners. It featured governors Haley, Jindal and Kasich. Kasich found himself on the defensive over his support for a government health-care expansion for hundreds of thousands of low-income Ohioans. Jindal, Haley and several of the donors opposed the expansion, made possible by Obama’s signature health-care reform law—Obamacare—and Kasich took some heat from the crowd.

There were a few close calls, such as when I entered the lobby men’s room and spotted Americans for Prosperity President Tim Phillips at the urinals, prompting me to turn on my heel in retreat.

These were delicate debates that once would have been hashed out by elected officials within the party apparatus, sometimes in rounds of platform committee votes, other times behind closed doors, but usually with some measure of public accountability. Now, the new rules of money and politics allowed the ultra-rich a seat at the head of the table for these debates—often without the public ever knowing that the debate had even occurred.

The Koch operation, in particular, has prided itself on keeping the seminars—and Koch political activities generally—secret and beyond access to reporters like me, ostensibly to make publicity-averse donors feel comfortable. To prevent leaks, Koch operatives at Indian Wells conducted background checks on the Renaissance Esmeralda wait-staff and collected smartphones, iPads and other electronics before many sessions. Attendees were told to protect their meeting materials and not post anything on blogs, Facebook or Twitter. No one did. Nor did I—at Indian Wells or any other time—get anywhere near the formal sessions: At one 2011 seminar, guards wearing gold lapel pins bearing Koch Industries’ “K” logo threatened “a citizen’s arrest” and a “night in the Riverside County jail” if I asked questions or took photographs. What I learned came from various sources who were in the sessions or had access to people who were.

In fact, I was elated to have gotten inside the Renaissance Esmeralda during the April 2013 seminar at all—if only to spend two days hanging out by the lobby bar, on the massage table or at the pool bar, soaking up Miller Lites and bits of conversation. I diligently avoided eye contact with Koch officials and operatives who knew me by sight. There were a few close calls, such as when I entered the lobby men’s room and spotted Americans for Prosperity President Tim Phillips at the urinals, prompting me to turn on my heel in retreat.

On the final full day of the seminar, I noticed Senator Johnson schmoozing two donors at a poolside cabana. I’d heard someone who attended these seminars describe Johnson as the Kochs’ “model legislator.” Figuring I had to make my last few moments count, I walked over and sat down nearby. It was just me, the Kochs’ model senator and the two wealthy backers he was talking to, identified by their name tags as Ned Diefenthal and Rob Ryan. Diefenthal, it turns out, is a Louisiana metal titan, and he was complaining to Johnson about the incompetence of the Republican National Committee. Johnson did not reject Diefenthal’s complaint, and he implied that the Kochs might be a viable alternative to RNC Chairman Reince Priebus—at least for the issue in question. “That’s what they’re trying to do here and that’s what Reince is trying to do,” Johnson said. But Diefenthal, whose family over the years had donated more than $280,000 to the RNC, was riled up. Priebus “keeps sending me letters asking for money. I’m not giving him any money. He doesn’t know what to do with it,” said Diefenthal, suggesting that he considered the Koch political network a better investment. By this point I was subtly trying to interrupt the conversation to introduce myself. But Diefenthal was on a rant and wasn’t leaving any gaps where I could interject. When he finally paused for a breath, I jumped in. I explained that I was a reporter—a declaration that journalistic standards required me to make before conducting an interview—and then led with a blunt question: Do big donors and outside groups like those at the seminar have too much influence in politics?

Before I finished my question, Johnson rose from the cabana couch and stepped around me. “It’s—it’s—it’s pretty hot,” he stammered, marching toward the nearby doors to the hotel lobby, donors in tow. Ryan, a tech billionaire, started to follow, but pivoted toward me. Pointing a stubby finger in my face, he scolded, “That’s pretty rude, you know? You interrupted a private conversation,” which, of course, I had. I didn’t disagree, and apologized again.

I assumed the jig was up. Surely one of them would alert security that their sanctum had been breached. So I found the nearest Koch security guard, figuring it was better to present myself as an honorable member of the fourth estate than to be tracked down like a fugitive. I handed him my business card, explained that I was a reporter, and told him that I was hoping to talk to Rob Tappan, a Koch public relations guy I had spotted earlier. I was ushered to the head of Koch security, Larry Moorman, and the head of hotel security, Armando Limon. How had I gotten past the checkpoint at the entrance? Limon asked. I’d just driven in, I explained. “That’s surprising,” Limon said, looking down while flicking my business card with his thumb.

***

The next day, the Kochs wrapped up their April 2013 seminar without me, and donors participated in a fitting—and fittingly effective—ritual that has marked the conclusion of most of their confabs. After a closing speech about the importance of unburdening business from governmental interference, the donors were encouraged to make pledges to a pool of cash that Koch operatives distribute to a constellation of handpicked groups, many of which are represented at the seminars. While quite a number of donors make their end-of-seminar pledges privately, others stand up and announce them, giving the pledge session an auction-like feel, with donors trying to outdo one another.

Americans for Prosperity Foundation President Tim Phillips, left, and Chairman David Koch, center, laugh as Amway Founder Rich DeVos addresses attendees of the Defending the American Dream Summit in Orlando, Fla., on Aug. 30, 2013. | AP Photo

After the 2012 election debacle, I expected the pledge tally to reflect some dampened enthusiasm. Only it didn’t. A source told me later that they raised $70 million. That’s 43 percent more than they raised at the conference after their first high-profile, and highly productive, big-money spending spree, in the 2010 midterm elections. Coming out of Indian Wells, they were on pace to far surpass both their 2010 midterm effort and their $400 million 2012 effort—meaning the checkbooks of political billionaires weren’t closing over one bad election.

Indian Wells was a snapshot of an extraordinary shift: the reordering of the political system by an elite fraternity of the superrich and a small brain trust of consultants who cater to them. Starting in 2010, a few dozen of the wealthiest donors turned on a gusher of mega-checks that have made them more important than the thousands of grassroots activists, small individual donors and even party leaders put together. Together, these donors have injected into campaigns sums that were once unimaginable, even as recently as the 2008 presidential election.

Intentionally or not, this new system has eroded the power of the official parties that have rigidly controlled modern politics for decades by doling out or withholding pork-barrel spending earmarks and campaign cash. Suddenly, party leaders have none of the former to offer (the result of symbolic belt-tightening reforms), and far less of the latter than big donors operating outside the party system. The result—the one Obama lamented on that rainy day in Washington state—is the privatization of a system that we’d always thought of as public. It amounts to the takeover—hostile or not—of American politics by the ultra-rich.