Amazon’s big bluff: How the tech giant became the real winner of the HQ2 sweepstakes

Amazon’s big bluff: How the tech giant became the real winner of the HQ2 sweepstakes

New York officials had less than 24 hours’ notice that Long Island City had been selected as Amazon’s HQ2. They had considerably more time to digest the possibility Amazon would pick more than one winner.

Amazon started negotiating terms with New York and northern Virginia about two weeks prior to finalizing the deals. New York City Economic Development Corp. spokeswoman Stephanie Baez said her city was notified around that time that Amazon may choose multiple locations for the $5 billion, 50,000-job project. Virginia had six weeks’ notice.

By the time Amazon closed the deals on Nov. 12, dividing HQ2 between a location in New York City and another in northern Virginia, officials had gotten used to the idea.

“We were told it was 25,000 jobs with the potential to create 40,000 jobs,” Baez said. “It wasn’t exactly disheartening.”

Only half of the new HQ2 positions will be technology jobs. Whether it’s claiming public subsidies for fulfillment and delivery jobs eventually poised for automation or collecting billions in incentives from New York and northern Virginia to split HQ2, Amazon has shown it can play governments against one another for a prize that might be less than expected.

“Amazon pretty much gets to do whatever they want and that’s what they did,” Toronto Global CEO Toby Lennox, who helped craft the city’s proposal, said of Amazon’s decision to divide HQ2.

Amazon said it made the decision in early September after reviewing the finalist proposals and found two headquarters would help the company recruit more employees.

The process

Amazon’s Nov. 13 announcement that it would split HQ2 into two cities with at least 25,000 jobs and open a third new office in Nashville came as a surprise to many — including HQ2 finalists.

In March, a team of 11 Amazon officials visited Raleigh, North Carolina, and had no meaningful discussions after the visit, sources said. That same month, about a dozen Amazon officials visited Atlanta during which the train they were riding broke down. A source who worked directly on Atlanta’s bid said Amazon had not been in contact since the site visit, nor did developers associated with the proposed project hear from the company.

Toronto officials learned about Amazon’s decision through media reports, although they received an update from Amazon this summer to say they were “still working through the process and had not yet made a decision,” Toronto Global spokeswoman Erika Thompson said. Amazon spoke to Toronto officials the day after the HQ2 announcement, to debrief and “leave the conversation open for future possible opportunities to work together,” she said.

In Nashville, Amazon notified officials that the city had not been selected about 30 days prior to the company’s announcement. But that gesture paved the way for another deal outside of the HQ2 sweepstakes.

“They’d had such a favorable impression with the job Nashville and the chamber had done, and all of our pro-business attributes, they said, ‘We’re not bringing HQ2, but we have another idea in mind that would be wrapped around logistics.’ And that’s when they mentioned this Operations Center of Excellence marquee,” said Bob Rolfe, commissioner of the Tennessee State Department of Economic and Community Development. “From there, we pivoted as well. We competed for what I’ll call the third leg of the stool.”

Denver Metro Chamber of Commerce Vice President of Economic Development Sam Bailey said Amazon told the city it was still in the running as of Nov. 6 and was also being considered for “other opportunities.” Denver learned on the morning of Nov. 12 — a day before Amazon’s public announcement — it had not been selected. Amazon then followed up with Denver on Nov. 14 to “discuss next steps,” Bailey said.

Bailey declined to share additional details, citing the organization’s policy not to comment on ongoing business.

The takeaway

Incentives alone aren’t enough to lure Amazon, but they provide a bonus in places where Amazon was likely planning to grow anyway.

And, to some onlookers, the decision seemed settled from the outset. New York and the Washington, D.C. area are home to Amazon’s fastest-growing businesses — advertising and cloud computing.

Amazon even seemed to foreshadow the decision to split HQ2 in the company’s original Sept. 7, 2017 request for proposals: “Amazon may select one or more proposals and negotiate with the parties submitting such proposals before making an award decision.”

“The list of 20 finalists was ridiculous,” said one economic development official who worked on a finalist proposal. “If they came out with a list of five or six, it would have been more reasonable to think it wasn’t just a data-collect.”

Amazon said the information HQ2 bidders provided is widely accessible.

Amazon has already used the HQ2 search to scout new offices in cities that weren’t among the 20 finalists. Amazon has announced plans to add more than 6,625 jobs at technology hubs in cities around the U.S. and Canada in the year since sending out its HQ2 request for proposals, which drew 238 submissions.

Amazon didn’t select Vancouver, British Columbia’s proposal as an HQ2 finalists but the city is still getting 4,000 Amazon technology jobs — and it didn’t offer any incentives. Nashville agreed to $105 million in incentives for its 5,000 jobs.

Stephen Moret, president and CEO of the Virginia Economic Development Partnership, said the state cut its incentives package roughly in half to reflect the HQ2 split. New York City Economic Development Corp. hasn’t responded to a request about whether or how New York adjusted its offerings.

Amazon asked all of the original 238 bidders to sign nondisclosure agreements, although the company confirmed in an email to the Puget Sound Business Journal that those nondisclosure agreements only apply to Amazon-related confidential information. Cities can share the proposals as they wish, Amazon said. Some cities have withheld some or all of their proposals.

University of Washington history professor Margaret O’Mara, who has been tracking the HQ2 search, said economic development is often a “race to the bottom.”

“Amazon may have invented the idea of an HQ2, but getting cities to bid has happened for a very long time, and 238 (cities) just walked right into it,” O’Mara said. “After this I hope they realize the math almost never pencils out in favor of the city and say, ‘This is not the way you foster sustainable economic development.’ They’re big companies, not philanthropies.”

“Incentive obsessed”

An economic development official who has worked with Amazon leadership on other projects told the Puget Sound Business Journal during the HQ2 search that Amazon CEO Jeff Bezos was “incentive-obsessed.”

“His whole team is charged with getting the largest pound of flesh possible out of every jurisdiction they are in,” the person said. “It’s about money and about the spreadsheet, but it’s also about being wanted and this gesture he expects from the governments where he’s blessing the community with high-wage jobs.”

In one case, Miami-Dade paid $1.5 million in incentives and a $5 million bond for an Amazon fulfillment center, but Amazon ultimately scaled back the number of jobs and cut the average wages.

Mike Mullis, a site selector for Bezos’ rocket company Blue Origin, “constantly hammered” Washington state-based officials in 2016 about what incentives they could offer in exchange for the company’s $200 million engine manufacturing plant, according to a source who signed a non-disclosure agreement and asked not to be named. Mullis said that characterization was consistent with how he operated.

Meanwhile, Amazon has in recent years collected at least $1.2 billion in public subsidies for its U.S. fulfillment and delivery network. Some of the jobs in that network are set to be automated.

American City Business Journal editors and reporters including Casey Coombs, Katie Arcieri and Adam Sichko contributed to this report.

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