Why NYT Bought Athletic for $550 Million
The future of subscription businesses
On October 4, 2021, subscription based news platform The Information published an article stating “Digital sports news firm The Athletic hemorrhaged nearly $100 million cash between 2019 and 2020, according to a presentation prepared for investors, exceeding the $73 million in revenue the company brought in over that same period.
The heavy losses reflect primarily the cost of building up a 600-person–strong reporting staff to cover local sports in both the U.S. and Britain, said a person familiar with the situation. And it shows the challenge for digital media firms of building profitable businesses while investing heavily in content to draw subscribers. That’s an issue video streaming services such as Netflix have also struggled with.”
On Jan 6, 2022, the New York Times reported, “The New York Times Company has reached an agreement to buy The Athletic, the online sports news outlet with 1.2 million subscriptions, in an all-cash deal valued at $550 million.”
What happened in 60 days? Background…
Athletic is subscription-based, ad-free sports website (focused mostly on local sports) was founded by Alex Mather and Adam Hansmann. It has around 1.2 million subscribers (they often give out subscriptions at throw away prices). They were a valued at ~ $530 million after a $50 million Series D round in 2020 that boosted its total funding to roughly $140 million.
They were playing the valuation game from the beginning. They reportedly hired investment firm LionTree to help find a buyer that would pay ~$750 Million — $200 million higher than what The New York Times reportedly agreed to pay.
The Athletic generated $73 million in revenue between 2019 and 2020 but lost about $95 million during that same time frame. They never made profit and were unlikely to do so in the near future.
Why did NYT Buy Athletic?
Here is the three sentence answer - The New York Times wants more subscribers and has more than $1 Billion in cash reserves. The Athletic has lots of subscribers but an unviable business mode. Combine these two and something might come out of it.
Let's unpack this bit by bit. Let’s get started by understanding NYT’s business model. We covered it in our newsletter but here is a summary.