Good afternoon, I’m Dylan Byers.
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The Athletic has now entered into exclusive talks with The New York Times about a sale. Here’s the logic.
I first heard about The Athletic some four years ago from Apple executive and Golden State Warriors and Duke megafan Eddy Cue, and I was immediately enchanted by the founders’ vision. Alex Mather and Adam Hansmann, who had met while working on the performance sports app Strava, seemed to intuitively understand what local newspaper executives had long realized: that sports fans were a sticky and insatiable audience, eager to read anything written about their favorite teams, even if that meant three articles about a game they’d already watched or a free-agency pursuit that was never going to materialize.
They also knew that the local sports reporters who fed those appetites were victims of a rapidly declining local news business, criminally underpaid, and already establishing direct relationships with their own unique fandoms over social media. So Mather and Hansmann seized the moment, snapping up some of the nation’s best team beat reporters, market by market, with a few million dollars in seed funding. Their ambition, Mather said, was “to be the local sports page for every city in the country.” It was an ambitious and smart idea.
In those early days, the duo had the moxie that usually comes from founders who know they are the beneficiaries of a new paradigm shift. “We will wait every local paper out and let them continuously bleed until we are the last ones standing,” Mather told The New York Times in 2017, betraying an unapologetically killer instinct that many journalists found uncomfortable but many investors nevertheless appreciated. “We will suck them dry of their best talent at every moment. We will make business extremely difficult for them.”
Setting aside the indifference for the death of local newspapers, I admired the acumen and hustle, too. And when I met Mather a few months later at The Athletic’s San Francisco headquarters, I entered the office as both a reporter and would-be student, eager to understand more about the business model that would bring their dream to fruition, and make it sustainable. I also found in Mather a thoughtful leader, wisened by his first brush with fame and slightly uncomfortable press.
Success in business often follows a relatively simple formula. To quote Succession‘s fictional entrepreneur Lukas Mattson, it’s essentially “analysis plus capital plus execution.” Mather and Hansmann made the right calculation about the sports news business: fandom was often local, and required an investment in local reporters. Furthermore, subscription-based direct-to-consumer companies would be valued more handsomely due to their business model (annual recurring revenue, or A.R.R.) and the trove of data helmed within the tech stack, which many publishers had largely abnegated by forking over their content to the Facebook news feed, among other intermediaries.
And their timing was perfect, seamlessly coordinated with the widespread legalization of sports betting and the rise of trends such as micro-wagering. The Athletic recognized that game stories were a relic of the past and that the interest had moved to the sort of scoopy analysis that helped recreational gamblers and fantasy sports enthusiasts gain an edge. They also raised significant capital to put their thesis to work: about $140 million to date, according to Crunchbase. (TPG, an investor in The Athletic, is also an investor in Puck.)
The matter of execution is usually where the rubber meets the road. The Athletic currently has 1.2 million paid subscribers—an absolutely astonishing feat putting them into a rarified air with historic media brands such as The Journal, The Washington Post, The FT, and even The Times, which leads the pack with nearly 8 million subscribers. Those aforementioned brands trace their heritage to the age when people rode on horse and buggy. The Athletic, by contrast, was launched at the beginning of the Trump administration.
But the road to that vaunted figure has been expensive. The Athletic spent about $95 million between 2019 and 2020, according to The Information’s Jessica Toonkel, exceeding its $73 million in revenue during the same period. Many start-ups are fixated on top-line growth in their early years—Mather and Hansmann expect to start turning a profit in 2023—but the losses have left many media insiders second-guessing precisely how sticky sports fans are, especially in well-served markets, and given the looming shadow of large international competitors like ESPN and Fox. Also, despite Mather’s bravado about hiring all the world’s great sports journalists, talent is a significant fixed cost.
With more than one million paid subscribers, The Athletic may be running up against its total addressable market—a hazy threshold where customer acquisition costs go up and the lifetime value of a subscriber diminishes. In short, it’s probably a good time to sell rather than attempt to raise another round of private financing.
With less than a year’s worth of cash on hand, Mather and Hansmann have been looking for an exit, after missed consummations with The New York Times and Axios. This time around, they hired the Zelig-like mega-media-banker Aryeh Bourkoff‘s LionTree to help facilitate a sale that would value the company at around $750 million, which is a fair amount more than the $530 million valuation set by their last financing round. (I haven’t seen the deck but that would suggest an aggressive multiple on the known revenue, or more scintillating recent revenue numbers.) Earlier this week, Front Office Sports reported that deal talks had heated up again with the Times. Now I can report that both parties have entered exclusive deal negotiations. And while all the normal caveats that you normally read in the Journal still apply—yes, sure, this could all fall apart at any minute for a variety of reasons—this latest development is a serious step forward and suggests that most key items have been covered over. (Mather did not respond to my interview request. Eileen Murphy, a spokesperson for the Times, declined to comment.)
An acquisition makes plenty of sense for The Athletic. A new owner would allow the founders to cut costs and focus on operational excellence, which is a fancy way of saying that they could more effectively monetize all the growth they’ve achieved, and with healthier margins. A deal would also probably allow them to unwind some of the less successful contracts they’ve made with writers, and use the Times as cloud cover for some of the more unpleasant and narrative-complicating tactics that all businesses must address, but few want to while they chug along the fundraising obstacle course. Mather and Hansmann will likely achieve significant wealth in their earn out, all of which is well-deserved given their contribution to pioneering, along with The Information’s Jessica Lessin, a viable and sustainable media model. Early employees will do well, too. And the Times’s performance marketing machine will help continue to grow the product and presumably pass on efficiencies and cost-savings to the company’s consumers.
But the notion of a sale is even more fascinating for the Times for a number of reasons. Most obviously, it would significantly elevate the paper’s relatively lackluster daily sports coverage, allowing it to become a dominant source for local sports teams in major and mid-level U.S. markets. The Times’ sports coverage has been losing altitude for a generation, bleeding elite talent like Howard Beck and Buster Olney to the competition. Internally, the Times has long relied on a strategy commenced by high-minded, if stunty, general interest journalism like Snowfall and publisher A.G. Sulzberger’s pre-C-suite 2012 feature on hang gliding. But that sort of work, while nice, rarely has meaningful business outcomes in a consumer-first world. If the Times endeavors to be the national media company of the center-left world, elite in-the-weeds sports coverage could be a compelling proposition, and a natural fit next to its lifestyle products such as NYT Cooking or its digital games business. It already recommends shows. Now it can recommend fantasy league moves.
Whether or not the Times wants to integrate the business into its core brand, such as NYT Cooking, its subscribers would unquestionably get the added benefit of better coverage and more choice. Times readers in, say, Seattle could rely on the paper for consistent coverage of the Seahawks and the Mariners, rather than the Giants and the Jets and the Yankees and the Mets—a significant value proposition for every potential Times reader outside of the tri-state area.
More importantly, The Athletic would provide the Times with an immediate influx of 1.2 million digital subscribers, bringing its overall digital subscriber base closer to nine million and inching it closer to its goal of 10 million digital subs by 2025. Such a move might—might—give the $NYT stock, which is down to $45 from an all-time of $55 in November, a tender boost. Surely there are many duplications within those numbers (I’m one, for instance), but an acquisition of The Athletic, at the right price, will very likely help the Times hit its goals for less money than it would spend by marketing itself on Facebook and elsewhere. While many assume that the Times rode to its subscriber goals on the wind of the Trump era and resistance politics, the company’s success is rooted in a technically proficient growth marketing team, and the reality that outside of D.C. and parts of New York, the Times’s biggest business opportunity is as a lifestyle brand. (The Times has been a fierce critic of Facebook, but its beancounters recognize the company’s value. They spend a ton of money there.)
Furthermore, both companies would be able to find efficiencies via a sale, which would create synergies—that cruel word of the consolidating media business. Whatever data Mather and Hansmann and Aryeh are showing Sulzberger and C.E.O. Meredith Kopit Levien, it goes without saying that the human capital-intensive model of local sports reporting is not a cheap business. Every time you want to add a new team to The Athletic’s offering, you have to add a new reporter. The Athletic currently has roughly 600 people covering local teams in the U.S. and Britain alone. The New York Times has around three times that many journalists covering all the news that’s fit to print in 160 countries across the world. The public markets will motivate the C-suite to find efficiencies, even though the unions will have some ideas, too.
Obviously, not all subscribers can be compared like apples to apples. The most important metric for the Times isn’t necessarily total subscriptions but ARPU, or average revenue per user. The Times charges $221 a year for a digital subscription; the Athletic costs $72 a year. While it occasionally takes the street a quarter or three to figure out this discrepancy—see the initial enthusiasm for $DIS due to Disney+ growth, despite the fact that Disney+ ARPU is weighed down by the far less lucrative Disney+ HotStar subscriptions in India—it eventually does. So even if the Times can claim an additional 1.2 million subs through an Athletic acquisition, that’s not the same thing as adding 1.2 million full-paying Times subscribers.
But perhaps the most persuasive reason for the Times to complete the deal is that the acquisition of The Athletic could allow The Times Company, which now also owns Wirecutter, Serial, and Audm, among others, to flex its muscles as the acquisitive holding company of the thinking persons’ media world. The company’s stock is up about ninefold since Sulzberger’s father fired then-C.E.O. Janet Robinson suddenly in late 2011. And, interestingly, it’s on par with its heady era of the early aughts, when it had a broad portfolio that included everything from local papers to About.com to an interest in the Red Sox. For a long time, the Times Company had to shrink to restore its greatness. Now, the market seems to want it to grow. What might be next? If Wall Street wonders, Kopit Levien and Sulzberger might too.
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