The $100 Million Financials Behind The Athletic

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Hey Friends,

Subscription-based sports website The Athletic has been shopping itself for months.

Founded by ex-Strava employees Alex Mather and Adam Hansmann, The Athletic launched in 2016 with one simple mission: “to provide smarter coverage for die-hard fans.”

Despite almost all sports-related journalistic coverage being free at the time, The Athletic took a different approach — the website had no advertisements.

Instead, they decided to build their business on subscription revenue. The content would be cleaner, the app would be easy-to-use, and they believed real sports fans would pay for good, high-quality reporting and writing.

Investors agreed, and The Athletic raised a bunch of money, nearly $140 million in total, from some of the best venture capital firms in the world.

The Athletic Funding History

  • Seed Funding: $2.3 million led by Courtside Ventures

  • Series A: $5.4 million led by Courtside Ventures

  • Series B: $20 million led by Evolution Media

  • Series C: $40 million co-led by Founders Fund & Bedrock Capital

  • C1 round investment: $22 million led by Founders Fund

  • Series D: $50 million led by Bedrock Capital

The Athletic used the initial capital to hire some of the best writers in the country, often paying them between $70,000 to $100,000-plus or a 20% premium on their current salary.

They launched in Chicago, grew to more than 20 markets across the United States and Canada by year two, and now, just five years later, provide coverage in 47 markets in North America and the United Kingdom.

But after reaching more than 1 million paying subscribers last year, growth slowed, working capital became thin, and the company started holding talks with various media companies about a potential acquisition.

Their desired valuation? About $750 million.

Investment banking firm LionTree was hired to find a buyer. Still, despite being one of the most desired companies in sports media just three to four years prior, acquisition talks with companies like Axios and The New York Times ended without a deal.

But this week, The Information got a hold of their pitch deck and uncovered some of the main reasons why investors might be struggling to place a $750 million valuation on the business.

The good news: The Athletic hit 1 million subscribers last fall, plans to end 2021 with 1.2 million subscribers, recently raised prices 20%, and has customer retention rates that typically hover around 80%.

But here’s the bad news…

After raising about $140 million in venture capital funding, The Athletic has hemorrhaged nearly $100 million of cash over the last two years, drastically outpacing the $73 million in revenue they brought in over the same time period.

There are plenty of people dunking on the fact that The Athletic lost nearly $100 million over the last two years. I won’t do that. There are hundreds of talented, hard-working journalists at the company, and I’m genuinely rooting for them to succeed.

But this financial disclosure shouldn’t surprise anyone. Sure, $100 million is a lot of money to burn over two years, but we already knew The Athletic would do about $75 million in revenue this year and that they still weren’t profitable.

In my opinion, this speaks much more to the difficulty of building a subscription-based digital media company in today’s environment. The best revenue strategy continues to be a diversified attack.

Take Barstool Sports, for example — they expect to do roughly $200 million in revenue this year, up 100% from the $100 million in revenue they did just two years ago.

Barstool Sports Revenue

  • 2019: $100 million

  • 2020: $150 million

  • 2021: $200 million

Barstool is profitable and growing rapidly, but they also aren’t reliant on one revenue stream either. Instead, the company makes money on advertisements, podcasts, subscriptions, e-commerce sales, betting, and pay-per-view. Hell, they even recently started selling frozen pizzas at thousands of Walmart locations across the country.

Building a media company isn’t easy. If it were, everyone would do it.

Most of these digital media businesses sell for ~5x revenue, so I think it will be difficult for The Athletic to find a buyer at 10x revenue unless they can convince someone that they can double revenue within two years as their pitch deck indicates.

But that doesn’t mean the business isn’t valuable.

Personally, I find a lot of value in the content. The Athletic employs some of the best journalists in the country and appears to give them the freedom to report on interesting stories you won’t find anywhere else.

That will always be valuable, but it will be fascinating to see if The Athletic can turn that consumer demand into a long-term, profitable business.

I hope you all have a great day, and I’ll talk to everyone tomorrow.

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Huddle Up is a daily letter that breaks down the business and money behind sports.

Join more than 48,000 professional athletes, business executives, and casual sports fans that receive it directly in their inbox each morning — it’s free.

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