U.S. Midterm Elections a Bright Spot in Dimming Ad Market

U.S. Midterm Elections Bright Spot Dimming
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The advertising market was hit hard by the COVID-19 pandemic in 2020, but it came back with a vengeance in 2021, reaching record highs and surpassing pre-pandemic levels. However, growth in the global ad market is being threatened in 2022, as economists warn a recession could be around the corner. 

An economic downturn would spell trouble for the booming ad market, and one major ad agency tracking advertising spend trends even published a downward revision to its U.S. forecast for 2022, citing economic and geopolitical uncertainties.  

In tandem with top economists slashing their estimates for U.S. GDP growth, Magna Global lowered its 2022 ad spending growth expectations by a full percentage point — to 11.5% from 12.6% growth — on concerns of lower-than-anticipated economic activity, continued supply-chain issues and persistent inflation. Nevertheless, the overall annual ad revenue was still anticipated to exceed $300 billion for the first time. 

Despite the doom-and-gloom narrative surrounding the ad market, the U.S. midterm elections are poised be the bright spot, though some media companies will benefit more than others. 

Political ad spending is running hot, with primaries well underway leading up to Election Day in November. According to ad tracking firm AdImpact, political ad spending in the first quarter surged 184% compared with 2018. Between Jan. 1 and March 31, a whopping $450 million was spent on political ads, versus $158 million spent in the same period in 2018.  

So far, political campaign ad spending in five battleground states represented nearly $400 million, according to Ad Age Campaign Ad Scorecard analysis. 

There are a lot of hot-button issues in this election cycle that will drive up ad spending, including ballot measures pertaining to abortion, marijuana, sports betting and climate change. Overall political ad revenue this election cycle is estimated to grow 41% from the last midterm election cycle in 2018 to reach $6.2 billion, according to Magna. And global advertising and marketing agency Dentsu also predicted roughly $5.9 billion in political ad spend because of the midterm election cycle. 

But not all media formats will see outsize growth as a result. As is typical during election cycles, local TV will reap the biggest benefit from the election, with an estimated 16% growth this year compared with a 5% decline last year. Magna predicted local television will rake in $4.2 billion, representing a 26% jump from 2018.  

Recent commentary from Gray Television CEO Hilton Howell echoed that prediction. “I think it's going to be a gargantuan year in this midyear election. And I think it will likely rival, if not exceed, any previous presidential election,” Howell said on the company’s Q1 earnings call May 6.  

Meanwhile, growth is a bit more muted across digital formats, with Magna expecting $1.5 billion in political ad revenue. Within the digital formats, search ad sales will likely grow 17%, while social media ad sales, including political, will expand 16%. 

The boost to regional broadcast companies will add to the group’s outperformance this year. Despite the broader stock market carnage, companies like Sinclair, Nexstar and Gray Television have been bucking the trend.

Shares of Sinclair were down 7%, Gray TV fell 6%, and Nexstar rose 13% versus the S&P 500’s 20% tumble so far in 2022. Unfortunately for tech, it’s going to take a lot more than political ad dollars to revive the deceleration in growth for the sector.