Iowahawk Handicaps the City That Gets the New Amazon HQ

[Updated February 1 to rremove the reference to Miami, Ohio which does not exist.]

You’ve heard that Amazon is choosing a city for their second headquarters. The retail behemoth released its “short list” of the 20 cities January 18.

With tongue planted firmly in cheek, well-known tweeter Iowahawk (@iowahawkblog aka Austin’s David Burge) has enumerated the pros and cons of each location. He swagged the odds for each city.

Atlanta and Austin top his list with 4-1 odds on each. (Hello? Austin? Hometown bias?) That translates to a 20 percent probability. For you non-gamblers, there’s a note at the end of this article explaining the relationship between odds and probability. Way down at the bottom are Miami (100-1), Newark, NJ (200-1), and Montgomery County, MD (250-1). Later I’ll show the complete list. But let’s get to the fun stuff first.

Three of the 20 finalists are located right next to each other. Do you think maybe Jeff Bezos wants another reason to visit the DC area? Remember, he already owns the Washington Post. The Washington, DC area is the sum of the probabilities for Washington, D.C., Northern Virginia, and Montgomery County, MD. (From this point forward, Mr. Burge will be “Dave” and Mr. Bezos will be “Jeff.”)

Many, including me, believe that Jeff has already made his decision. The true objective of having 20 finalist cities is to encourage competition among them for the HQ. This competition includes various tax breaks, tax incentives, and outright payments from the city’s coffers. One important point: Jeff owns houses in both New York and Washington.

Washington DC area map Iowahawk Handicaps the City That Gets the New Amazon HQ

Washington DC area map (click for larger image)

The probability of the Washington, DC area winning is the sum of the probabilities for Washington, DC; Montgomery County, MD; and Northern Virginia. At the very end of this article I’ll explain the relationship between odds and probability.

Dave’s analysis focuses on quality of life for employees. I’ll add comments on three other considerations:

  1. Jeff’s personal life goals,
  2. Strategies for the long-run growth of Amazon, and
  3. Jeff may believe that transplanting a large number of Amazon employees to a state could flip the state from red to blue (Republican to Democrat). This is an intriguing possibility that I’ll discuss when it seems relevant.

That means we have 21 finalists. Here’s a graph of the results. Probabilities are on the vertical axis and the odds are above each bar.

Dave's estimates Iowahawk Handicaps the City That Gets the New Amazon HQ

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The Pros and Cons

The real fun is Dave’s snarky comments on the pros and cons of each city. Later I’ll show you the complete table. Here I’ll look at each city starting with the highest and continuing to the lowest probabilities. Here’s what he said. My perceptive rejoinders follow. From this point forward, Mr. Burge will be “Dave” and Mr. Bezos will be “Jeff.”

1. Atlanta

Atlanta Iowahawk Handicaps the City That Gets the New Amazon HQ

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In 1996 Atlanta hosted the summer Olympics. During the opening ceremony, a bunch of doves were released. The day before one wag noted that this was a bad idea. “You just know there will be a dozen or so rednecks with shotguns outside the stadium.” Georgia is pretty much prime second amendment territory. I suspect the sheer number of rednecks will be a negative for Jeff. Georgia is a solid red state. It’s unlikely that putting Amazon in Atlanta will flip the state to blue.

2. Austin

Austin Iowahawk Handicaps the City That Gets the New Amazon HQ

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Austin is ranked too high. This is the city that banned Uber and Lyft. The capital of the state is also a small oasis of progressiveness in an expansive “desert” hotbed of conservatism. Surprisingly, Dave failed to note the presence of the University of Texas, a college made great by virtue of spending the money of polluters on progressive goals. Among their illustrious faculty is Bob Metcalfe, the inventor of Ethernet. If anything, the presence of U of T should give Austin a boost in the rankings. And, as noted earlier, it’s unlikely Texas will flip from red to blue unless Jeff moves several hundred thousand workers to his new HQ.

U of Texas Longhorn Logo Iowahawk Handicaps the City That Gets the New Amazon HQ

U of Texas Longhorn Logo

3. Boston

Boston Iowahawk Handicaps the City That Gets the New Amazon HQ

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Boston is ranked way too high. Hellacious traffic jams combined with killer winters will create high employee turnover. I suspect Dave has never visited the illustrious town. Driving is impossible. Seriously. Boston streets were laid out following the original cow paths to the Boston Common. And the drivers are, well, nuts. If you visit that fair city, take taxis. This is one town where I would stay away from Uber and Lyft. You want a pro behind the wheel. And as for the weather, Boston is located directly along the freeze line. That means during the winter it warms up during the day and melts the snow. At night, the temperature drops and that water freezes. The street layout and drivers are bad enough. Add slick roads and, well, you really can’t imagine what it’s like. And summers can be bummers, too. One summer when I lived there it rained every single weekend. It started raining on Friday and stopped on Monday. I swear I am not making this up. ($1 to Dave Barry.) Finally, Massachusetts is a solid blue state (notwithstanding its occasional flirtation with a Republican governor or senator). There’s no point in making an already blue state even deeper blue.

Boston College logo Iowahawk Handicaps the City That Gets the New Amazon HQ

Boston College logo

Not many people know that Boston College was the first university in Boston. Remember, MIT and Harvard are both in Cambridge. But there are a plethora of universities in the area. MIT is, of course, excellent. Harvard is OK.

4. Washington, D.C.

Washington DC Iowahawk Handicaps the City That Gets the New Amazon HQ

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As noted earlier, Jeff’s personal preferences may well come into play here. But for purely business reasons, Washington DC is ranked way too high in fourth place. To which I say, “Really??” Traffic as bad as anywhere in the country combined with a mass transit system that rivals New York City for unreliability should put our nation’s capital further down the list. Also there are terrible public schools and a local government that shuts down when a single snowflake falls. I promise that $500 will not buy you the time of day from any member of Congress.

And there is no point to trying to flip Washington DC from red to blue. The District of Columbia has exactly zero electoral college votes.

Finally, I need to remind Dave of this quote from John F. Kennedy.

Kennedy quote Iowahawk Handicaps the City That Gets the New Amazon HQ

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5. Toronto

Toronto Iowahawk Handicaps the City That Gets the New Amazon HQ

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Toronto seems ranked just about right. For one thing, I shouldn’t have to remind Dave that size doesn’t matter. And he’s wrong about hockey. The Toronto Maple Leafs are currently in third place in the NHL’s Atlantic Division.

Toronto Maple Leafs logo Iowahawk Handicaps the City That Gets the New Amazon HQBut, of course, the characterization of Canada’s Prime Minister is apt. I believe Lizzy (@Lizzie363) was the first to name Mr. Trudeau “Zoolander”. One overlooked positive is for those who vowed to emigrate to Canada if Mr. Trump was elected president. If Toronto is selected they can fulfill their promise and work for a large U.S. company. It’s a win-win! But Toronto, like every other city and province in Canada, has no votes in U.S. elections. That counts against them using the “flip the state from red to blue” criterion.

6. Pittsburgh

Pittsburgh Iowahawk Handicaps the City That Gets the New Amazon HQ

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Pittsburgh is ranked a bit too low. The few times I’ve visited I’ve found it to be a pretty nice town. And Carnegie-Mellon is a first class university.

In many respects, Pittsburgh is what Portland (OR) was 30 years ago. Real estate prices are low. The downtown is gradually being taken over by hipsters. And Pennsylvania is always in play politically. The drawback is the state’s large population, 12.8 million. Adding 20,000 Amazon workers won’t make much difference.

But the state sure is friendly. Here’s the home page..

Pennsylvania Welcomes Amazon Iowahawk Handicaps the City That Gets the New Amazon HQ

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Yes, that’s a link to a chunk of the website extolling the virtues of Pennsylvania to Amazon.

An additional plus is proximity to Cleveland (133 miles by car). The Cleveland Clinic is a world-class medical facility. Amazon employees will need that after numerous falls on the icy streets have destroyed their knees.

7. Dallas

Dallas Iowahawk Handicaps the City That Gets the New Amazon HQ

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Dallas is ranked about right. Pluses include actual Texas conservatism, business-friendly regulation, and the terrific Texas business climate. On the downside, winters can be hellacious. On my visits I’ve been impressed by the way the downtown buildings funnel the ice-cold winds. Plus I thought Dave would know that the eponymous TV series was fiction. And don’t get me started on the nightmare called “Dallas – Ft. Worth International Airport.” I’m still trying to figure out which circle of hell it belongs in.

Another plus is proximity to many athletic teams ranging from high school through the professional ranks. Dallas ranks right up there with Toronto: both have professional hockey teams.

Dallas Stars logo Iowahawk Handicaps the City That Gets the New Amazon HQ

Dallas Stars logo (click for larger image)

Jeff ain’t gonna turn Texas blue unless Amazon expands very, very rapidly.

8. Chicago

Chicago Iowahawk Handicaps the City That Gets the New Amazon HQ

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Illinois? Are you kidding me? Ranked way too high at number 8, Chicago does not belong in the top 15. High taxes, a state government that regularly sees governors sentenced to prison, a shrinking population, and way too much influence from Chicago in Springfield. Now let me tell you about the murder rate. In fairness to Dave, he used to live here, so part of the relatively high ranking is probably caused by sentiment. Also, he still owns his former residence in Chicago.  Is this just a ploy to boost its value?

Despite having a Republican governor, both Chicago and Illinois are dominated by a Democratic political machine. Like Massachusetts, Jeff shouldn’t try to make a blue state even deeper blue.

You may remember former governor Rod Blagojevich.

Blagojevich Iowahawk Handicaps the City That Gets the New Amazon HQ

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His Wikipedia page lists this as his current address:

Blagojevich address Iowahawk Handicaps the City That Gets the New Amazon HQ

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That’s right. He’s the guy who tried to auction former President Obama’s senate seat. He’s currently serving a 14-year sentence.

9. Nashville

Nashville Iowahawk Handicaps the City That Gets the New Amazon HQ

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Nashville is the sleeper of this bunch. It should be in the top three. Start with a bonus: the city is a mere 212 miles from Memphis, making weekend visits to Graceland easy. Memphis was the original hub airport for FedEx.  According to the official history, that city was chosen for its central location and having an airport with very few weather delays.

I once worked with a guy who travelled a lot. He lived in Los Angeles when we worked together. A few years later he moved to Nashville. A big plus is a first-rate international airport. Those musicians need to be able to get to and from the Grand Ole Opry.

Tennessee’s population is 6.7 million. The state is red and getting redder. There’s little chance of Jeff reversing this trend. Here’s some data from

Tennessee Voting History Iowahawk Handicaps the City That Gets the New Amazon HQ

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I’ve been to Nashville twice and was impressed with how easy it is to get around and the high quality of its hotels and restaurants. Plus there’s plenty of convention space. And Tennessee has a low cost of living, business-friendly government, and some nice schools (Vanderbilt, for example, is located in Nashville). I would take Dave’s 20-1 odds and bet on Nashville.

10. Northern Virginia

Northern Virginia Iowahawk Handicaps the City That Gets the New Amazon HQ

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One criticism of Dave’s odds is that Washington, DC, Northern Virginia, and Montgomery County, MD are basically the same place. Therefore they should have similar odds. That is, at best, misleading. There is more to location selection than pure geography. But it still disturbs me that three of the 20 sites are Washington, DC and its suburbs. Jeff Bezos will not be happy with the taxes and regulations in any of those places. But here we are. Does Amazon really need a supply of cyanide and/or strangling wire? Offsetting that issue is Virginia’s numerous excellent wineries.

On the other hand, Virginia is a swing state that has been trending slightly blue. This has been largely caused by federal government workers living across the Potomac River in Alessandria and other suburbs. Another 20,000 Amazon workers might hasten the trend to blue. Again, from

Virginia voting history Iowahawk Handicaps the City That Gets the New Amazon HQ

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11. Raleigh

Raleigh Iowahawk Handicaps the City That Gets the New Amazon HQ

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Raleigh is just out of the top ten. That seems about right to me. The Raleigh-Durham area is home to Duke University and the University of North Carolina. College basketball and car racing are huge here. Raleigh is 156 miles from Charlotte, home of the Charlotte Motor Speedway and the NASCAR Hall of Fame. Perhaps Jeff is thinking about buying an NBA team and would use a Raleigh-based headquarters to scout college talent. Another plus is very affordable real estate and access to North Carolina wineries, all 131 of them.

But it’s still located in North Carolina. The thin veneer of civilization is especially tenuous once you get out in the country. And, with a population of 10.7 million, the state has remained solidly red in presidential elections since 1980 with one exception. In 2008 the voters chose former President Obama.

12. Philadelphia

Philadelphua Iowahawk Handicaps the City That Gets the New Amazon HQ

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The real mystery here is why Philadelphia is even on this list. The 12th place ranking is way too high. Philadelphia government is about as corrupt as it gets, at least in the U.S. Pennsylvania politicians are second only to Illinois in ending up in jail. In 2016 former state Attorney General Kathleen Kane was sentenced to 10 to 23 months in prison for operating a political payback scheme. From the Wall Street Journal

Ms. Kane, 50 years old, was convicted in Montgomery County Court outside Philadelphia in August on nine counts, including perjury and obstruction of justice, for leaking grand jury documents to a local newspaper in a bid to embarrass a political foe and for lying about it under oath.

Kathleen Kane Iowahawk Handicaps the City That Gets the New Amazon HQ

Kathleen Kane (click for larger image)

Unless Jeff plans to go the bribery and corruption route for his new HQ, he should probably avoid this place. Although it is affordable in much the same way that Detroit is affordable.

There is, once again, little hope of turning the state blue and no need to turn Philadelphia any more blue. See the earlier discussion of Pittsburgh for details. I’ll just remind you that fully 59 Philadelphia precincts did not cast one single vote for Mitt Romney in the 2012 presidential race.

13. Denver

Denver Iowahawk Handicaps the City That Gets the New Amazon HQ

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This is the correct ranking for Denver. I doubt very much that access to beer and weed are in Amazon’s plus column. And I have to remind Dave that Denver is the second-highest state capitol in the U.S. (Win bar bets with this one: highest is Santa Fe, NM.) The absence of sea-level oxygen content will mean more frequent rest breaks for employees. But housing is affordable and there is fine skiing. Also the Eisenhower Tunnel on I-70 is worth a trip unless you’re even slightly claustrophobic.

When it comes to voting, Colorado has been trending blue since 2008. With only nine electoral votes, there would be little point trying to turn the state completely blue.

14. Columbus OH

Columbus Iowahawk Handicaps the City That Gets the New Amazon HQ

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I have no idea whether Columbus is ranked correctly or not. But it says something that Dave felt the need to include the name of the state here. In all honesty, I had no idea what his comments mean. But some research revealed the “pros” are all related to The Ohio State University football fandom. According to the Modern Wellness Guide website, Big Nut is a Buckeyes superfan.

Jon Peters [Mr. Big Nut] gained national fame when he painted his face scarlet and gray at the 2003 Tostitos Fiesta Bowl, when the Ohio State University Buckeyes defeated the University of Miami Hurricanes. But Peters, who OSU fans know best as “Mr. Big Nut,” decided to turn his celebrity into something more.

Ever since Mr. Big Nut came to be, Peters, 53, and his wife Terese, 49, have passed out more than 1,000 necklaces every season with scarlet, gray and silver beads. Each necklace has bead blocks reading “OSU Nut” or “Big Nut,” and is handmade with the tens and thousands of buckeyes that the Peters gather with their grandsons every year. People have tried to buy the jewelry, but the Peters refuse payment.

Here’s the man himself all decked out.

Mr. Big Nut Iowahawk Handicaps the City That Gets the New Amazon HQ

Mr. Big Nut (click for larger image)

The Horseshoe is the nickname for Ohio Stadium. So what’s the “i”? At halftime the Ohio State marching band spells out “Ohio” in script. When the word is finished, a sousaphone player prances over to a spot above the “i,” performs a few maneuvers, and bows to the crowd. Hence “dot the i at the Horseshoe.”

.Avoiding the “m” is a tribute to Governor John Kasich’s Buckeye fandom. Here’s the story:

COLUMBUS, Ohio (AP) – Gov. John Kasich wants Ohioans to avoid using the dreaded letter “M” on Saturday when No. 3 Ohio State faces archrival Michigan.

Kasich declared the game day as “Scarlet Letter Saturday” in honor of Ohio State’s rivalry game with the Wolverines. Ohio fans have often found other schools to refer to Michigan, calling the school “That Team Up North” among other epithets and singing songs about their utter disregard for the state.

Lately, Buckeyes fans on Twitter have taken to dropping the letter M from their tweets, even from their own names.

Sigh. The Big-10 12 14 is a strange place. It once had ten teams. Today there are 14. But the conference has not changed its name. Reason enough to avoid Columbus and other places where they can’t count.

Nonetheless Columbus has affordable housing, as well as combining the virtues of being the state capital and the home to a pretty good college football team. But there’s no way 20,000 Amazon employees are going to change the voting statewide or in Columbus.

15. New York

New York Iowahawk Handicaps the City That Gets the New Amazon HQ

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Even in 15th place, New York is rated too high. Dave and Jeff must be pulling our collective legs. New York City is expensive, crowded, and has a public transportation system that is possibly the worst in the country. The failure of public transportation has encouraged the rise of Uber and Lyft. That, of course, has increased street congestion. Both the state and the city have business-hostile governments. Mayor Bill de Blasio murdered a groundhog. The New York Post was all over the story.

Mayor Bill de Blasio has groundhog blood on his hands!

A week after Hizzoner dropped Staten Island Chuck in front of a crowd of spectators on Feb. 2, the winter-weather prognosticator died of internal injuries — and then the coverup began, The Post has learned.

Staten Island Zoo officials went to great lengths to hide the death from the public — and keep secret the fact that “Chuck” was actually “Charlotte,” a female impostor, sources said Wednesday.

de Blasio Fumbles Charlotte Iowahawk Handicaps the City That Gets the New Amazon HQ

Mayor Bill de Blasio Fumbles Charlotte (click for larger image)

However, Mayor de Blasio did not kill Eric Garner (the illegal cigarette vendor presumably referenced by Dave).

16. Indianapolis


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Indianapolis is 51 miles northeast of Bloomington, home of Indiana University. If you don’t get the reference to high school basketball, go watch “Hoosiers.” And, of course, Memorial Day weekend the city is mobbed with people heading to the Indianapolis 500. And I personally resent the slur against Ft. Wayne. I lived there for a few years when I was a kid. Indianapolis is centrally located, livable, and has a reasonable cost of living. It should be ranked higher, at least with Columbus.

2017_Indy500 Iowahawk Handicaps the City That Gets the New Amazon HQ

Indianapolis 500, 2017 Edition (click for larger image)

17. Los Angeles

Los Angeles Iowahawk Handicaps the City That Gets the New Amazon HQ

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I’m a little surprised that Dave ranked L.A. this low. He’s a fairly frequent visitor to the City of Angels. So he knows about (but didn’t mention) the exorbitant cost of housing, high state taxes, massive state and local regulations, impossible traffic, and a city government that taxes everything it can think of. But he’s ranked it number 17, probably about right.

18. Miami

Miami Iowahawk Handicaps the City That Gets the New Amazon HQ

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Miami, Florida, is a wannabe Los Angeles but with bugs, bugs, bugs. Really big bugs.

The University of Miami Hurricanes athletic mascot is Sebastian the Ibis.

U of Miami Sebastian the Ibis Iowahawk Handicaps the City That Gets the New Amazon HQ

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This guy is right up there with the Stanford Tree in the competition for strangest mascot. It’s worth mentioning that the team’s nickname is “The Hurricanes.” Nothing like a constant reminder that natural disaster is just around the corner and a frequent visitor.

And Florida’s inhabitants are about the weirdest anywhere in the U.S. Go check @_FloridaMan and @_Flor1daWoman. Both accounts have not been active recently. But here’s one example:

Florida Woman Iowahawk Handicaps the City That Gets the New Amazon HQ

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If not for Newark, Miami would rank dead last.

19. Newark NJ

Newark Iowahawk Handicaps the City That Gets the New Amazon HQ

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Fun fact: there is a Newark, California.

There is no way Newark can be on Jeff’s real short list. About the only positive thing is an international airport. But that’s it. The city’s ranking is spot on.

20. Montgomery County MD

Montgomery County MD Iowahawk Handicaps the City That Gets the New Amazon HQ

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I’m not sure why Dave ranks this lower than Newark. Just another one of the three Washington, DC locations. And it is also heavily populated by DC bureaucrats. Montgomery County should be ranked much higher, at least closer to Northern Virginia and Washington, DC.

Odds, Probabilities, and Technical Notes

Here’s Dave’s complete list ranked by probability.

AmazonNewHQ Iowahawk Handicaps the City That Gets the New Amazon HQ

Dave’s picks (click for larger image)

Readers who also have too much time on their hands will notice that the probabilities add up to 112.96 percent. The sum should be 100 percent since (presumably) one city will actually be selected. I’ve used a straightforward method to recalculate the probabilities and odds for each city/region. This does not change the ranking.

mazonNewHQ_AdjustedOdds Iowahawk Handicaps the City That Gets the New Amazon HQ

Dave’s picks with the correct probabilities and odds (click for larger image)

My Guesses

For what they’re worth. I only claim more expertise on this because I suspect I am at least a decade older than Dave and have lived in a few more places.

AmazonNewHQ_MyEstimates Iowahawk Handicaps the City That Gets the New Amazon HQ

My ranking (click for larger image)

A Statistical Note

Odds are expressed in n1-n2 format (e.g., 2-1). That means if you win the bet you receive n1. But if you lose you pay n2. The total value of the bet is n1 + n2. The probability of you winning the bet is
1/( n1 + n2).

There’s a simple way to understand this. Consider 1-1 odds (commonly called “even odds”). Intuition should tell you that you have an equal chance of winning or losing. Which means the probability of you winning is 50 percent. Which is exactly ½.

Getting from odds to probability is pretty easy. The reverse direction – probability to odds – is less intuitive, but no more difficult. Let’s stick to the easiest case where the odds are always expressed as
n1 – 1. Using the previous equation we can see that n1 = (1/probability) – 1.   It gets tricky if you let n2 be greater than 1 because there are many combinations of n1 and n2 that add up to (1/probability). By the way, that’s why 1 is subtracted in this calculation. We’ve assumed n2 = 1.

DIY Odds and Data

Because I have too much time on my hands, I converted his ratings into an Excel workbook, then converted the odds into probability, then sorted the whole mess. The entire Excel workbook, including instructions and sources, can be downloaded via a link from this page. Please, please, please read the instructions and follow them carefully. If you’re better at Excel than me and you make any improvements, I’d appreciate it if you’d send me your workbook. Some notes on your changes would be nice, too.

Excel Workbook Iowahawk Handicaps the City That Gets the New Amazon HQ

I’ve transformed his tweets into an Excel workbook, translated odds into probabilities and sorted the table from highest (Austin and Atlanta are tied for first). A (much) longer article is forthcoming at New Geography. Stay tuned for a link.  To download the workbook, click here.  BEFORE YOU MAKE ANY CHANGES, PLEASE, PLEASE, PLEASE READ THE INSTRUCTIONS AND FOLLOW THEM CAREFULLY.  If you make improvements to the worksheets I’d appreciate it if you’d e-mail me a copy.

In the meantime, here’s the key graph. Probabilities are on the vertical axis, the odds are above eachbar.

Dave's estimates

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Intuit Joins Amazon So You Can Earn 10 Percent on Your Tax Refund

Warning: I’ve always believed that if it sounds too good to be true, it probably is.  There are risks associated with this deal, the main one being that will go under before we have a chance to spend our refund.  If that happens, you will at least have the satisfaction of knowing that I got burned right along with any of you who take this offer.

If you use TurboTax for your taxes and have a refund coming, here’s an easy way to make an extra ten percent instantly.  My guess is that not everyone will qualify for this offer, but it’s something to watch for.  You can choose to receive part of your tax refund in the form of an gift card — with the face amount equal to ten percent more than the amount of your refund you use this way. Intuit joins Amazon so you can earn 10 percent on your tax refund.  And it’s ten percent today, not ten percent per year.

Background: TurboTax and Me

I’ve been using TurboTax for my taxes since the years before Intuit bought it.  To give you some idea, several returns were printed with a dot-matrix printer.  Yes, TurboTax is that old.  And I’ve used it every single year.  Without TurboTax our tax situation would be hopeless.

This year, due to a combination of somewhat lower income and about the same expenses, we’re getting a fair-sized refund.  I was approaching the finish line (or, in this case, the electronic filing line).  Much to my surprise, I saw this offer:


TurboTax Offer

TurboTax Offer

Don’t get excited.  This is a dummy tax return put together with hypothetical numbers that guaranteed a refund.  After consulting with my lovely wife, I accepted the deal.  And, sure enough, I was promised that if I let Amazon keep $x of my tax refund they would give me a gift card for 1.10 x $x.  Example:


Amazon Offer

Amazon Offer

(If you can’t read those tiny screen shots, click here for a pdf file that shows both of them clearly.)

What Does It Mean?

There is one risk to this deal: if Amazon declares bankruptcy, my gift card will be worth nothing.  And I have to wonder why Amazon is offering this deal.  Cash flow problems?  Unable to borrow in the financial markets?  At the very least, this needs investigation by somebody with more time on their hands than me.

Time to Sell Netflix and Buy Amazon and Apple

Netflix, Amazon, and Apple logos

Netflix, Amazon, and Apple logos

Disclaimer: I am not an investment adviser of any kind.  Over my long career I have picked some winners and some losers.  But most of my portfolio is in mutual funds with low expense ratios.  The advice I’m giving here is my opinion only.  If you choose to act on it, you’re on your own.

Recent technological developments have led me to wonder whether this might be the right time to sell Netflix and buy Amazon and Apple. The two technological developments I’ve seen recently are included in Apple OS X Mountain Lion and iOS 5.x. Both, however, work only with Apple TV, a small box that will set you back all of $100. Read on.

Apple OS X Mountain Lion (10.8)

Mountain Lion includes a brand new feature that lets you seamlessly and easily mirror your Mac’s screen onto your flatscreen using Apple TV.  We’ve been using it to watch streaming video from  Get this: Amazon Prime costs $80 per year and allows unlimited streaming of many titles at a price of zero.  Caveat emptor: some videos that show up as available for streaming are not free.  Read carefully and make your decisions before you have that second beer.

Compare that to Netflix streaming: about $96 per year but, frankly, with a crappy title list.  It looks to me like the major studios have decided Netflix is not paying them enough for content and are signing on with Amazon instead.  And Amazon has struck a deal with (the internet movie database site) to place click-through links on IMDB when a title is available for streaming on Amazon.

So let’s spell it out.  Amazon’s deal is cheaper, has higher-quality titles, offers the opportunity for pay-per-view for newer releases, and will work with any flatscreen that supports Apple TV.  Which is all of them.  (Our homemade home theater system is a Vizio 40 inch flatscreen, a Sony amplifier/tuner, a couple of speakers, and Apple TV.  We also have an HD DVD player which we don’t use much any more.)

Apple Airplay

The second option is streaming video wirelessly from your iPhone or iPad to Apple TV via Airplay.  This does not work with Amazon’s mobile streaming app.  However, you can mirror pretty much anything you can put on the iPad screen onto the flatscreen.  The setup can be tricky (click here for a lengthy discussion with many tips), but once it’s working, it works very well.  And the cost of this option is zero — whatever video you can download and put on the iPad you can play on your flatscreen.  (Disclaimer: our tests have not been exhaustive.  We welcome comments about what works and what doesn’t.)

What’s Reed Hastings Up To?

With all that in mind, Netflix CEO and serial entrepreneur Reed Hastings has done something astounding.  The two paragraphs below are from a Wall Street Journal article:

“Reed Hastings, chief executive of Netflix Inc. and a Facebook Inc. board member, disclosed on Thursday a purchase of roughly $1 million in Facebook stock.

In a filing with the U.S. Securities and Exchange Commission, Mr. Hastings disclosed buying 47,846 Facebook Class A shares on Wednesday at a weighted average price of $21.03 each. Facebook’s stock closed trading Wednesday at $20.72.”

Mr. Hastings is on Facebook’s board and apparently didn’t own much FB stock before this.  Perhaps he was under pressure to join the other directors and make a commitment to the company.  Maybe Facebook wants to buy Netflix.  The only reason I can think of for a move like that is Netflix’s one viable asset: their huge inventory of DVD disks.  Their pioneering video streaming technology is probably worth quite a bit, too — to the right buyer.

So maybe I’m wrong.  The downside risk of selling Netflix right now is that some other company might buy them.  Probably not Google because they own Youtube.  But Facebook?  Your guess is as good as mine.

Amazon’s Proposal to California

A few days ago, made a proposal to the California state government: in exchange for repealing the state’s new sales tax on internet sales, Amazon would build several new distribution centers in California.  Amazon estimates this will create 7,000 jobs in California.

I was curious about the winners and losers under each proposal, so I did some number-crunching in Excel.  There are several critical assumptions:

  1. The new jobs hire only Californians not currently working,
  2. There is no migration from other states,
  3. The annual income of the new workers is $25,000,
  4. The discount rate is 4%, and
  5. Amazon’s estimate of a tax liability of $200,000,000 per year if the current law stays in place and is upheld by the courts.

These assumptions are spelled out on the “Assumptions” tab of the Excel workbook (see below).  Using my assumptions, the present value of the tax revenue under current California law is about $2.89 billion between 2012 and 2034.  I used 2034 as the cutoff date because that’s 20 years from Amazon’s promise to create the 7,000 new jobs by 2015.  If the government accepted Amazon’s proposal, there would be two impacts.  First, the state would collect sales tax and income tax revenue from these workers.  The present value of the government revenue is $229.5 million.  Slam-dunk, right?

Not so fast.  Those workers will be earning income.  In fact, the present value of the newly-created income is $2.58 billion, about the same as the tax revenue that would be created under the new California law.

The lesson is clear: if the government gets the revenue, that’s terrific.  If California residents get the revenue (and jobs) that’s not so good.  If you live in California, this is yet another example of your government watching out for your interests.

Don’t like my assumptions?  You can try it yourself. The Excel 2007 workbook I used for this analysis is available for download.