A multiple-vote contested convention has not occurred in most of our lifetimes and because of that is little understood. Some claim that Donald Trump does not have a clear path to the Republican nomination. Depending who you ask, Hillary Clinton will be indicted, mired in scandal or not by the end of May. The uncertainty of contested conventions will contribute to summer market volatility. Let’s look at the convention process, delegate math and the most likely scenarios.
Party conventions are no longer controlled by old men sitting in smoke-filled rooms and are more accurately called contested or open conventions rather than brokered conventions. This is partially because a voting process of elected and/or appointed delegates controls the results of the convention and has since the late 1930s. Despite this, some "brokered" conventions survived into the late 1960s. This was due to the fact that state elections did not always produce bound delegates up until that time. That said, the political and donor class on both sides still impact the results through the election and appointment of delegates, which happens pre-convention at the state and party levels, and through the influence of delegates, which occurs throughout the process.
The Democratic convention of 1952 was the last contested convention that required more than one round of voting to elect a nominee. Adlai Stevenson was nominated on the third ballot and eventually lost the general election to Republican Dwight D. Eisenhower.
The last contested convention that produced a president was in Chicago in 1932 when Franklin Roosevelt went on to win the presidency. Roosevelt won the nomination on the fourth ballot when John N. Garner of Texas pushed delegates his way in return for the vice presidency. Deal making is a staple of these type of conventions. The stock markets were barely affected – they bottomed that year due to the Depression and rose into 1937, when they experienced another major correction.
The last Republican convention that produced a president was also in Chicago in 1920 when William G. Harding was nominated on the tenth ballot. The leading candidate could not attain a majority of delegates on earlier ballots. Harding, a compromise candidate resulting from another deal, was the first sitting senator to be elected president. The markets were relatively stable that year, but they began to rise in 1921 and took off in 1924-25 after Harding died in office from a cerebral hemorrhage in 1923.
Contested conventions versus a clear path
Republican convention rules require that a candidate have a majority of 1,237 delegates to attain the nomination, not a mere plurality. According to Real Clear Politics, Trump's national polling average is currently about 37%, and even with his win in Florida, he will still need at least 50% of the remaining delegates to get to 1,237. But, his average delegate share in primaries up to March 15th was only about 42%. After March 15th, it was slightly higher. But, almost two-thirds of the popular vote is still against Trump in his own party.
Cruz would need about 70% of the remaining delegates to win the nomination. This means there is a good probability of a contested Republican convention when it arrives July 18-21 in Cleveland, Ohio.
If Hillary Clinton is called to testify before a grand jury in May, indicted, or if she is not indicted but a scandal results from FBI leaks concerning her email violations, it may be difficult for her to continue her campaign. Of course, the Clintons have shown they have political endurance, so nothing is certain. But, there is a possibility that there will be an open Democratic convention July 25-28 in Philadelphia.
With Clinton's perceived honesty already below 40% in some polls, Republicans and some Independents may be excited about the prospect of a Republican president. But, such a result is far from certain in the midst of a fractured candidate-selection process with the potential of splitting the party during a contested Republican convention. With many in the party against him, Donald Trump is not assured the nomination.
As of late March 19th, with some delegates to still be apportioned, Trump had 678 delegates; Ted Cruz 423; Marco Rubio 164; and John Kasich 143. Based on this count, Trump needs 559 delegates to win. If the other candidates have 1,237 delegates combined, they can prevent Trump from claiming the nomination.
By the time of the Democratic Convention, a majority of 2,382 delegates will be needed to win the nomination. As of March 19th, Hillary Clinton had 1,614, and Bernie Sanders, 856 (figures include super-delegates). Because the remaining states heavily favor Clinton, and because she has an advantage with super-delegates, barring a scandal that derails her, she is assured the nomination.
Super--delegates versus unbound delegates
On the Democratic side, there are 712 independent super-delegates. According to Real Clear, 467 are presently committed to Clinton; 26 to Sanders. These super-delegates are un-pledged delegates, a class created in 1984 to give present and former party officials and former leaders an influential voice in the nomination process.
On the Republican side, reports vary, but according to some, there are somewhere between 20-30% of delegates that are unbound, meaning that they are free to cast their votes independently – some on the first vote, some after. According to at least one report, initial unbound delegates only number about 160 or so, and are unbound at the state or party level from the beginning. But, some of the extra unbound delegates come from candidates that have suspended their campaigns.
For Republican’s, each state's rules on voting bound or unbound are different and arcane. This is why it is difficult to determine the exact number of unbound delegates on the first vote on the Republican side. For example, though Marc Rubio suspended his campaign after Super Tuesday II, there are some unbound delegates he does not retain, but he retains his bound candidates, which will likely go to Cruz.
In general, the advantage of a candidate who stays in the race until the convention is that their delegates remain with them and continue to be bound during the first convention vote. If you can block the leader's route to victory and keep him or her from attaining the needed delegates to win, this is king -making power. What confuses the process on both sides is each state's varied and opaque rules relative to their delegates. And the conventions and parties can apparently change their rules right up until the week before the conventions begin.
But, different from the Democratic Party, the Republican delegates are not super-delegates, meaning that most of them are not established party officials with ties to a main candidate. They are unbound delegates from different states that do not have one loyalty, but in most cases many different loyalties. And in some cases, candidates with suspended campaigns have aligned themselves with remaining candidates, like Ben Carson with Donald Trump and Carly Fiorina with Ted Cruz. This makes it likely that the former delegates would vote for the newly endorsed candidate, not the favored candidate or the candidate with a plurality.
The nominating process: Political insiders and donors versus the people
The real danger at the Republican Convention is that a Trump nomination or loss may result in a party split or a third-party formation, pitting Republicans versus Republicans and endangering a positive general election result for the party.
The real danger at the Democratic Convention is that a newly drafted candidate will need to be available in the event that Hillary Clinton is either indicted or too scandal-laden to run due to the FBI's investigation of her misused email process.
Regardless of the possibilities, here is how the process unfolds:
- States and the make-up of delegates
State delegates come from three categories: Republican Party (RNC) or Democratic Party (DNC) delegates, At-Large State delegates (AL), and Congressional District (CD) delegates.
The Republicans assign 10 delegates to each state and then 3 delegates per Congressional District. Each state also has 3 RNC delegates. The other delegates are split between AL and CD depending on the state. For example, California has 3 RNC delegates – their other 169 Republican delegates are split between AL and CD, for a total of 172.
The Democrats assign their delegates differently using proportion of votes and state number of electors. Both parties give bonus delegates to states that pass certain criteria.
- State delegate selection
It differs from state to state, but in general, the parties appoint specific delegates by committee, the state either appoints them or elects them by convention or slate (an election process), and the CD appoints or elects them by convention or slate.
Either the state or local government or the party supervises the delegate election process in every state, regardless of whether it is DNC, RNC, AL or CD delegates. In contrast, in the primary elections, some state elections are open, meaning that, at times, Independents, Democrats, or Republicans can vote (which some maintain helps Trump). Some are closed, meaning only those in the party can vote in the primary (Trump won big in Florida despite this). But the delegate elections involve only voters in that party.
Further, appointed delegates are likely to be persons who have some history of political involvement. This favors establishment and donor candidates, though campaigns also influence the delegate selection/election process through the persons they put in place in each state's political process. Candidate national organization becomes key in the delegate election process. This favors candidates with political history, organization and money.
According to reports, Trump does not have a well-organized national organization and has little favor with the establishment; Cruz has a well-run organization but also little favor with the establishment; Kasich will have fewer votes going in but is more of an establishment candidate with some organization. Kasich will also have influence over and/or access to all the delegates since the Ohio Republican establishment is co-hosting and organizing the National Convention along with the RNC. This helps to explain why Kasich has insisted on staying in the race.
Some of the AL delegates go to former elected state officials (e.g., former governors and senators,) and are also allocated based on the current number of Republicans or Democrats in state and federal government.
- Delegates and the convention process
At the Republican convention, before a candidate can even have his or her name in the ring, he or she must have won the majority of delegates in at least eight state primaries. But, since the rules committee meets right before the convention begins, this rule could be amended at the last minute.
The first election in a contested convention generally goes according to the national voting results. On the first vote call, bound delegates are obligated to vote for the candidate state elections designated. But, there are cases in which candidates with less votes throw their delegates to the leading candidate in order to put them over the top. And some unbound delegates are free to vote independently. In this race, since Trump is not well-liked, this is not likely to help him, but it's possible.
In successive convention votes, delegates are progressively free to vote for whomever they choose. More delegates are released to vote freely in each stage of voting until all delegates are free. If the convention progresses into this phase, deals will be made. Anything can happen because state delegate rules and loyalties are opaque. No one knows for sure who the delegates favor, who influences them, what deals have been made or who their choice will be.
Though it is possible for any candidate entering the Republican convention with about 1,000 delegates or more to win on the first ballot, it is unlikely. However, the closer a candidate is to 1,237 on entry the greater the chance that a first ballot win is possible.
How will it all play out? Some pundits believe that a Clinton indictment or scandal on the
Democratic side will most likely lead to either a Biden or Elizabeth Warren ticket, though John
Kerry, Al Gore and Jerry Brown, governor of California, have also been mentioned as possible nominees. The Republican nomination could go to Trump, Cruz, or a compromise candidate like John Kasich, governor of Ohio. It is much less likely to go to anyone else, though unity deals between candidates are certainly possible: a Trump-Kasich ticket could be an eventual winner; or, Cruz-Kasich could oust Trump and win over some of his followers.
The bottom line is that contested conventions are complex and unpredictable because each state obligates their delegates with different rules, and each convention has a different set of rules. Establishment pillars, politicized delegates and donors still wield some influence over results, but the current conventions are more democratic than at any time in history. At present no one, including Trump, has a clear path to the nomination.
Fox News and incorrect versus correct math: Trump's likely path
As Fox News's Eric Bolling pointed out on The Five on Super Tuesday II, with 11 of the remaining contests on the Republican side winner-take-all states, one has to give a definite edge to Trump. If he were to win all delegates from all 11 contests, he would amass 597 delegates, just from these states alone. This would assure him the nomination.
But, it's more complex. Even though his methods of computation were fair, Bolling failed to point out that these winner-take-all states conduct their primaries under different rules: only three states are truly open elections; the rest are closed (only Republicans can vote); five states, including California with 172 delegates, award the winner-take-all delegates per Congressional District, not according to statewide vote. At least one state splits its delegates, awarding some to the state winner and others according to Congressional District (Bolling did appear to call these later categories winner-take-some). Some states have minimum thresholds for acquiring delegates.
Bolling used two methods in his computations: a percentage of delegates method, and the winner-take-all/winner-take-some method. Using this later method, he appeared to break down Trump's future victories in these states 76/24. That is, Trump would need to win 76% of the winner-take-all/winner-take-some state delegates and 24% of the remaining proportional states.
Unfortunately, Bolling's math, displayed on a white board on The Five's post-election live coverage, which showed Trump as a lock for the 1,237 delegates by the convention, was just plain wrong.
In computing with delegates won so far, he failed to account for delegates held by suspended campaign races in his percentage totals and also used an incorrect number for remaining delegates. At that point, Trump did not have 47% of total delegates, but 46% of the total, a minor mistake. But, the delegates that remained were equal to 2,472 (total delegates available) minus 1,336 (approximate delegates allocated). That’s 1,136, not 1,316, the number Bolling used.
Bolling's comment on his conclusion that Trump had the nomination wrapped up, that "[y]ou can't make this stuff up," was ironic, considering that the numbers were made up. How he came up with 1,316 remaining delegates is a mystery. Perhaps being a Trump supporter blinded him some, or perhaps the late hour caused him to transpose the numbers.
As of late March 19th, the delegate count had changed. There were 1,051 delegates remaining. But Trump's percentage of delegates changed as well. He had 48% of all delegates.
Applying Bolling's percentage of delegates method, multiplying 1,051 by 48% results in 504. If Trump were to win 48% of remaining delegates, his total would be 678 (delegates won so far) plus 504 (delegates likely to win). That’s 1,182. Calculating as of late March 19th, the correct math leaves Trump 55 delegates short of the 1,237 needed to win going into the convention.
Trump's route to the nomination by the winner-take-all/winner-take-some method is too clouded to predict due to state election discrepancies relative to how delegates are awarded. Unless Trump is able to increase his average win percentage of delegates to at least 50%, it appears that there will be some type of contested convention.
And, just to confuse things, even the experts appear to disagree on the path needed. According to Larry Sabato, a University of Virginia political expert with a great track record of political predictions, Trump needs 60% of the delegate count to attain 1237. Sabato spoke on Fox News on March 16th. Since all computations in this article came from Real Clear Politics' latest data, I'm not sure where Sabato gets that figure. Regardless, Sabato believes Trump will be close enough to close the nomination with a deal before the convention opens.
That said, if Trump really gets within 100 delegates of 1,237 going into the convention, it would probably be impossible to deny him the nomination. At that point, a deal with a small portion of the unbounded delegates would give him the nomination on the first ballot.
Though Trump is the favorite with the momentum, neither Trump nor Cruz has a clear path to 1,237, so it is likely that there will be some sort of contested Republican convention (even if it only takes one vote to resolve it). No majority is likely to be attained by the end of the last primary on June 7th.
Since Hillary has most of the super-delegates locked up, she is on a more certain path to the nomination. However, she must avoid indictment or scandal. Otherwise a contested convention, or at least a last minute draftee, is likely.
Conclusion
About 61% of the Republican electorate nationally has voted for someone other than Trump. The majority of voters does not favor him, so if he loses it will be hard for his supporters to credibly maintain that anything was stolen, even in a contested convention.
One way to beat Trump is for Cruz, Kasich and Rubio to come together in a unity coalition under Cruz, the candidate with the most popular votes and delegates among them: Cruz runs as president, Kasich as vice president and Rubio takes a cabinet position, most likely National Security Advisor or Secretary of State. But at present, those three actually coming together seems unlikely.
A long shot is that Kasich could actually prevail in a contested convention and attempt to unify the party with a conservative vice president. Those who predict this note that most delegates still tend to come from the establishment and donor wing of the party, giving Kasich a competitive advantage in a contested convention. Others point out that Kasich doesn't have the organizational infrastructure to win at the convention, but Cruz does.
All of the above will be moot if Trump gains momentum and takes the nomination with 1,237 delegates before the convention. But even if he wins Arizona (a true winner-take-all state) and Utah (minimum threshold 15%, and winner-take-all if over 50%) on March 22nd, he is still likely to need an average of over 50% of delegates to avoid a contested convention.
Contested conventions, though interesting and exciting, have not and probably will not play much of a role in the volatility of markets except for short-term dips or bursts. An exception would be a Republican Party split over whether Trump is the nominee or not. If there is a third-party candidate, this could roil the markets, especially if investors anticipate it having an impact on the historical political fabric of the nation, or -- if like the 1992 elections with Ross Perot -- a third-party candidate changes the expected election outcome.
Regardless, presidential election years tend to be slight up-years for the markets. That does not seem likely to change unless some Black Swan event, like a surprise terrorist attack or something else, changes it, or, unless -- like the nomination year of 1968 -- violence and riots occur on a major scale. But even in 1968, the S&P 500 was up 7.7%, following a 20.1% increase in 1967. National events between now and July, or November, however, could completely change things.
All in all, the Republican and Democratic conventions will make July an interesting month and 2016 an interesting year.
Seaborn Hall has been involved in some facet of the investment arena for over 30 years. He has a degree in management from Georgia Tech, two master’s degrees in theology and has studied at the doctoral level. Until recently, he was a regional director at a national top-50 RIA, headquartered in California; he now focuses on managing a family investment company.
Read more articles by Seaborn Hall
