At the end of last week’s Sharp Tech, we had a great time retracing the ruthless steps that Ken Griffin and his Citadel hedge fund took to acquire Leopold Aschenbrenner’s Situational Awareness book at a steep discount in the middle of Aschenbrenner’s multi-day wedding in Carmel, California. Then the day after we recorded that episode, with Griffin still on the mind, I came across news that Citadel will not be responding to Mayor Zohran Mamdani’s hostile messaging and aggressive tax policies by unwinding the company’s plans for massive new offices in New York City. Instead, the fund reaffirmed its participation in what will be a multi-billion dollar project for a redeveloped skyscraper that will house Citadel’s New York offices on a 15-year lease agreement.
Digesting that story a few days ago sent me down two parallel rabbit holes that I found pretty interesting, so let’s start with Citadel. Here was last week’s news, from Fortune:
One filmed a widely regarded publicity “stunt” outside the other’s $238 million penthouse. The latter responded by telling the former he was doxxing him, told him to read a history book, and waved a major $4.5 billion project over the former’s head. Months passed, a new tax was introduced, and fans of both sides charged the other. And after all this back and forth, nothing changed.
Ken Griffin’s public feud with New York City Mayor Zohran Mamdani has not stopped Citadel from doubling down in Manhattan. … [A]ccording to a Tuesday morning earnings call from Vornado CEO Steven Roth, Citadel will carry forward with the 350 Park Avenue redevelopment after all.
Citadel is expected to remain involved in the project as a “60% partner,” Roth said on the call. “Citadel as our 1-million-square-foot anchor tenant.” Roth’s comments solidify Citadel’s presence in New York—with the company verifying the comments made on the call to Fortune—despite the ongoing public spat between its CEO and the city’s mayor.
As that story notes, the spat at issue dates to an April video from Mamdani in which the mayor of New York introduced his pied-à-terre tax in front of Griffin’s $238 million penthouse property on the edge of Central Park in Midtown, Manhattan, singling out Griffin by name. Citadel responded at the time with COO Gerald Beeson writing to employees, “We are about to commence the redevelopment of 350 Park Avenue, creating 6,000 highly paid construction jobs and supporting the creation of more than 15,000 permanent jobs in mid-town New York. The project—if we move forward—will entail more than $6 billion dollars of spending.”
Well, Citadel is officially moving forward. Griffin still resides primarily in Miami (hence his pied-à-terre liability), but his fund will remain rooted in Manhattan even as it expands its footprint in Florida. The news is definitely satisfying for fans of Mamdani, and not terribly surprising to anyone who works in finance. Griffin himself said in May that “We will probably go through with the building when it’s all said and done.”
What I find interesting is why it’s harder to downsize a fund’s presence in New York than it is for, say, Griffin to relocate his corporate headquarters from Chicago to Miami (where he recently bought an entire apartment building). Talking to friends in finance, there are a few different factors in play here. The first and most obvious is that talented employees are an asset unto themselves for firms like Citadel, and the fund risks bleeding talented people if it were to issue a top-down edict ordering those employees to uproot their lives and move to Miami.
As for the employees themselves, leaving New York for Florida means forfeiting optionality should they want to change jobs and join one of the thousands of funds who don’t relocate and continue doing business in New York. Moreover, while many aging executives have kids in college and can realize the tax benefits of relocation without incurring too much friction, that’s not true of middle management in their 30s and 40s.
Many finance execs have gone to great lengths to navigate an insanely competitive application process and secure placement in private schools for their kids—schools that exist to service the wealthy children of the finance industry. Abandoning all that work to relocate their families to South Florida is unappealing not only because it’s inconvenient for everyone involved, but also because similar infrastructure doesn’t quite exist in Miami.
As the Wall Street Journal reported this spring:
The children of South Florida’s new tech titans and hedge-fund managers are overwhelming the area’s school system. Most of the private schools are full. Many are expanding but still lack even enough desks for all the children of recently relocated executives.
… South Florida has plenty of new housing and shiny modern office space. It is the shortage of private school slots that is emerging as a major bottleneck for more high earners relocating to the area. Those whose children are on multiyear waiting lists for the next available opening may end up moving away, or never arriving in the first place.
Finally, many top employees have already left. They don’t live in New York proper and are insulated from anything Mamdani or Governor Kathy Hochul attempts with tax regimes. These employees own homes in Connecticut or New Jersey, belong to country clubs in those areas, send their kids to private schools in those states, and commute to the city to pay for all of it. This is how the ecosystem has always worked. (And hey! New Jersey, “the armpit of the nation,” was just ranked the second most desirable state to live in).
Looking at all this from afar, what I’m describing in New York are what economists would call “network effects.” Just as AT&T became irreplaceable to customers as more people joined the Bell System in the early 20th century, or as Meta properties gained utility with each new friend who joined them 15 years ago, similar dynamics preserve the primacy of Wall Street. The more firms there are working in the finance industry in New York City, the more valuable it is for talent to be close by, and the more satellite services emerge to make everyone’s life easier. Likewise, the more painful it becomes to switch networks (aka “switching costs”).
Once that flywheel gets going, it tends to be fairly durable. Network effects are also one of the strongest forces preserving the global primacy of the U.S. dollar, and they’re the only credible explanation for X, formerly Twitter, somehow remaining a cultural tentpole despite several new competing platforms and three years of changes that almost every user claims to hate.
Meanwhile, cities all over America benefit from network effects both for economic and sociological reasons. Young, high-achieving and attractive people want to be near one another for social reasons (more fun, deeper dating pool) and because there are more economic options and upside, particularly in cities where talent and expertise have aggregated around specific industries (finance in New York, tech in Silicon Valley, politics and lobbying in D.C., or, say, Portland with its constellation of sneaker and apparel companies).
There are, however, limits to the power of network effects. So now let’s switch coasts and go to Los Angeles.
Once Upon a Time in Hollywood
Once network effects are sufficiently powerful and dominant, technological disruption and regulation are arguably the only ways to break them. Both of those themes feature in L.A.’s story for the past 10 years, but we’ll get there. First, here’s Matt Belloni at Puck earlier this week:
Last Wednesday, David Ellison called a lunch meeting on the Paramount lot with his top lieutenants—the 12-member Executive Leadership Team, or ELT, as it’s dubbed internally—and outlined in stark terms the stakes of the Paramount–Warner Bros. merger litigation for each of them. During the hourlong meeting, Ellison first expressed confidence that the company would defeat the case brought by California and 11 other Democratic states, and ultimately close the controversial $110 billion transaction. He also said that, despite the prolonged and costly antitrust battle with the attorney general of his home state, his goal remains to keep the combined company—and the 30,000 or so jobs, including their own—based in Southern California.
But, according to two people with direct knowledge of the meeting, he wanted his top people to know that the rumors were true: He had decided to move Paramount Skydance to either Tennessee, Texas, Georgia, or another state he didn’t identify if Rob Bonta, the California A.G. leading the charge, did not come to the table to negotiate a settlement. Further, Ellison told the group, he had set an October 1 deadline to resolve the matter.
… Ellison wasn’t done: He estimated to his team that the company would save $500 million per year in taxes by relocating outside California, and his plan includes recouping additional costs by selling the Paramount and/or Warner Bros. studio lots, which have each been valued as high as $4 billion (though they would probably sell for less these days, given the chilly production climate in L.A.).
Who knows whether a Paramount move would actually happen; their executives and employees would likely have many of the same objections as Citadel managers if asked to uproot their families and relocate to Texas or Tennessee. That move would also alienate wide swaths of the creative community Paramount hopes to work with going forward (as Belloni notes later in his piece). For now, Ellison’s reported talks with rival states and this week’s public threats to consider all their options (Paramount Chief Legal Officer Makan Delrahim: “There’s a point at which where you have a duty, a fiduciary duty to your shareholders.”) seem to be a transparent tactic to jumpstart settlement talks with California AG Rob Bonta, who thus far has refused to negotiate over remedies that could help avert a trial (and 10 months of ticking fees as Paramount fails to close its deal). With Bonta’s intransigence drawing the ire of California governor Gavin Newsom while Newsom’s likely successor Xavier Becerra calls for a settlement, Paramount is turning up the pressure by making its long-rumored, implicit relocation threats more public and explicit. We’ll see what happens next.
What’s more remarkable to me is that when I mentioned this story offhand to a friend in finance, he reminded me that regardless of Paramount’s threat to relocate thousands of jobs from L.A., there’s already been tremendous damage done to the film industry in that city. Most of that damage is unlikely to be reversed.
As Belloni noted in his parenthetical, the Paramount lot would be unlikely to fetch its market value given how depressed the production climate is these days. Likewise, in an editorial for the New York Times that ran last weekend, Ellison writes that his litigation opponents “imagine a Hollywood that no longer exists.” On that point, he’s right. A city that used to enjoy many of the same network effects for its entertainment industry as New York does with finance, L.A. has seen quite a bit of attrition over the past 10 years.
What’s happened is that as IP and talent have become more expensive in the face of surging content demands, costs are being controlled elsewhere on the budget. Productions have been moving to places like New Mexico, New Jersey, Texas, Canada, London, and more recently Hungary—all in search of friendly tax credits, lower wage scales, cheaper and more efficient permitting regimes, and, in the case of foreign markets, favorable exchange rates, and an escape from negotiations with a different union across every component of a production.
The impact of those corporate impulses is not limited to the below-the-line workers in L.A. Georgia, for example, was once a booming alternative to Hollywood in its own right, but its cost advantage disappeared as the workforce matured and local unions became more powerful. It also didn’t help that all stateside work was halted during 2023’s WGA and SAG-AFRTRA strikes; local production has still not come back from that deep freeze. Today, Georgia’s film industry is experiencing a steep decline and Disney has relocated all of its Marvel productions from Atlanta to the United Kingdom.
Meanwhile, workers in film and TV all over the country are also facing the consequences of consolidation among studios and less spending overall, while tech companies like Netflix have opted to vertically integrate much of their productions rather than contract with local companies who specialize in areas like lighting, costumes, or even payroll on productions. Along those same lines, rather than licensing new content from Hollywood studios in perpetuity, Netflix is in the process of building a new, $1-billion studio thousands of miles from L.A., in Monmouth, New Jersey (armpits are having a moment). In the meantime, Budapest has become a hotbed for Netflix originals.
Against that backdrop, the fate of Paramount and Warner Bros. Discovery looks like a footnote to a more dramatic shift in one of the most successful American industries of all time. President Trump may have the wrong solution when he floats a tariff on foreign TV productions, but he’s highlighting a real tension. It should have been impossible for L.A., with all its expertise and infrastructure, to lose this much business to the rest of the country and the world. Yet here we are. The structural dynamics of the entertainment landscape made studios more cost sensitive, rival states and countries stepped up with massive tax incentives, and California’s bloated regulatory regimes, high costs, and incredibly powerful unions made relocation challenges easier to stomach.
What’s happened to the employment base in Hollywood is a reminder that policy choices that are inconvenient for businesses can eventually hurt employees far worse. Strong industry unions built generations of middle class success throughout L.A. and protected the upside of the creative class, but as they did with Detroit and the auto industry, those unions also incentivized business leaders to look elsewhere for future productions. Competition and technological disruption compounded the problem, as did a complacent California bureaucracy that was slow to react to any of these trends (the state finally passed competitive tax credits in 2025).
A Note on Mamdani
Wall Street, on the other hand, is riding the tailwind of tech investment and benefiting just the same as Silicon Valley. Citadel was up 14% in the month of July, while Goldman Sachs profits are booming and its stock is up 18% since the beginning of the year. Far from President Trump’s vision of a world where businesses are fleeing New York City under a socialist jihadist regime, commercial real estate in Manhattan is “red-hot.” While sound stages and production lots in L.A. sit empty, Manhattan office occupancy rates have recovered to near pre-pandemic levels and JP Morgan just opened a new, gleaming $3 billion skyscraper of its own.
I’m fascinated by the dynamics in New York and depressed by those of modern Hollywood, and—despite everything I just wrote about contemporary New York—I think Hollywood offers an interesting cautionary tale for the “tax the rich!” DSA movement that now has the wildly popular Mamdani as its avatar and is sweeping cities all over America. When everyone is making money, then yes, New York’s most successful businesses and many of its citizens will tolerate the highest personal income tax and corporate tax rates in America (even higher than California!). The growth in state and city spending that has well outpaced inflation all looks sort of tenable. In a downturn, however, that calculus could change.
Besides, regardless of where corporate offices are located, where high-earning employees actually choose to live matters a great deal. If an employee who’s making $5,000,000-per-year and is taxed at 4% by New York City eventually leaves for Connecticut, the city can’t recoup $200,000 in tax revenue from sales taxes even if the same employee is still commuting to Manhattan. Likewise, it’s been a Fox News talking point for years that families are fleeing New York and California while Texas and Florida see massive growth, but that’s a talking point that happens to be true. With a shrinking tax base, ironically enough it’s been success on Wall Street—and massive gains across New York pension funds—that has eased budgetary pressure on New York City.
Watching New York from afar, I can’t imagine living there at my age, but I’ll always love visiting. I’m certainly not stupid enough to bet against its future. Beyond just finance, New York has iconic cultural and industrial networks attracting talent and investment in at least a dozen other world-leading industries. Even as L.A. politics spirals or cities like Chicago and DC confront massive budget holes, New York has so many structural advantages that the city will almost certainly be fine. So will most cities, because again, network effects are powerful.
There is, though, that Hollywood counter-example. Life does sometimes get measurably worse. Taxes, wage-mandates, and painfully slow permitting regimes all make it harder to operate and build affordably. That can throttle growth, create costs that are passed on to consumers, and ultimately incentivize both businesses and citizens to consider living somewhere slightly less insane. Some of that’s already happened in New York, but today’s top line metrics all look fine thanks in part to an AI investment frenzy and a Wall Street community that Mamdani has spent his first year attacking.
Mamdani’s story contains multitudes and would need its own article, but for now I’ll simply note that his audacity is remarkable. Watching the mayor spurn Jewish lawyers, fire every business leader advising the city’s fundraising arm, release the names and addresses of 900,000 people who own a $1,000,000 property, or grandstand in front of Ken Griffin’s apartment building, I’m reminded of Leopold Aschenbrenner and his zealous belief in his own thesis. As Mamdani promises any number of expensive social programs that may or may not work, there is not an ounce of hedging or situational awareness in his strategy to remake New York. Indeed, the fun irony of socialists is they are generally vilifying precisely the cohort of people who give society enough margin for error to survive any of their worst impulses.
Sharp Text is an extension of the Stratechery Plus podcasts Sharp Tech, Greatest of All Talk, and Sharp China. We’ll publish once a week, on Fridays. To subscribe and receive weekly posts via email, click here.