The New York Times Is Buying The Athletic For $550 Million

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Hey Friends,

The New York Times has completed two major acquisitions in the last three decades.

They acquired the Boston Globe for $1.1 billion in 1993, selling it twenty years later for just $70 million, and they purchased About.com in 2005 for $410 million, selling it just seven years later for about $300 million.

That represents more than $1 billion in losses on those two acquisitions alone.

But they have also watched their stock price jump more than 250% over the last five years, and since past performance doesn’t necessarily guarantee future results, the 170-year-old company has decided to take another swing at things.

The New York Times announced yesterday that they were acquiring subscription-based sports media startup The Athletic for $550 million, deploying more than half of the $1 billion in cash they currently have on their balance sheet.

Here’s a quick overview of The Athletic that I wrote earlier this year:

Founded by Alex Mather and Adam Hansmann— former coworkers at subscription-based fitness company Strava — The Athletic had one simple mission: “to provide smarter coverage for die-hard fans.”

The website had no advertisements. Instead, despite almost all sports-related coverage being free at the time, The Athletic decided to build its business model on subscription revenue. The website 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.

The interesting part? Investors agreed. Mather and Hansmann wowed Y Combinator — the seed money startup accelerator that has launched over 2,000 companies, including Stripe, Airbnb, and DoorDash — and The Athletic officially launched in 2016.

The Athletic launched its coverage in Chicago, grew to more than 20 markets across the US and Canada by year two, and now, just 5 years later, has 450 reporters covering nearly 50 markets in North America and the United Kingdom.

They cover almost every sport, from the NFL and NBA to MMA and boxing, and have hired nationally recognized writers like Ken Rosenthal, Shams Charania, and Lindsay Jones. And yes, they have raised more money along the way.

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

In total, The Athletic has raised $139.5 million via five funding rounds.

So I think there are probably a few different ways to look at this deal.

Virtually every major news publication in the United States experienced tremendous growth during the Trump presidency — whether you loved him or hated him, he was polarizing, which was good for the media business.

The New York Times more than doubled its subscriber base from 3.4 million in 2017 to 7.5 million when Trump’s term ended in 2020. The Washington Post tripled subscribers during the same period, and nearly 1/3 of the Wall Street Journal’s 3.2 million subscribers came under Trump’s presidency, despite launching their paywalled service roughly 20 years prior.

Those are now the three largest English-language news publishers in the world.

But with Trump officially leaving office in January 2021, politically-focused legacy media outlets throughout the United States have seen a massive drop in traffic.

Website Traffic Last 12 Months

• New York Times: -34%

• Washington Post: -44%

Primetime TV Viewership Last 12 Months

• CNN: -38%

• Fox: -34%

• MSNBC: -25%

As a result, the New York Times saw its subscriber growth drop 50% on a year-over-year basis during Q3 2021, and I imagine they see The Athletic as an aggressive way to add 1.2 million subscribers in a category that diversifies their bundle and strengthens their offering.

The real question becomes, is the acquisition worth $550 million?

The Athletic raised $140 million in venture capital. They hired 450 journalists—the NY Times currently has 45 sports journalists—and they expanded to 50 markets in just five years while attracting 1.2 million paying subscribers and reportedly maintaining an 80% customer retention rate.

That’s the good news, of course, but the financials aren’t as pretty. The Athletic lost $54 million in 2019. They lost $41 million in 2020 and another $55 million in 2021. That’s a combined loss of $150 million over the last three years alone.

Even worse, the company doesn’t expect to be profitable until 2025.

Their last funding round—a $50 million Series D in 2019—valued the business at $500 million, meaning that investors probably won’t lose money on the deal. Still, it’s a significant drop-off from the $750 million valuation that The Athletic sought this past summer.

The deal breaks down to about $460 per subscriber—dividing $550 million by 1.2 million subscribers—which is significantly more than The New York Times pays to acquire a customer right now, but offers them the ability to meaningfully extend the lifetime value of those customers by providing a more diverse subscription bundle.

There has been a lot of consolidation occurring amongst digital media companies lately. Low-entry offers only last so long before churn starts to pick up, and a diversified bundle has proven to be the best model for long-term value.

It will be interesting to see how this plays out. You’ve probably seen people dunking on The Athletic. I get it. They said they were going to destroy newspapers, yet ended up getting bought by one after burning hundreds of millions of dollars instead.

But if building a business is hard, building a $500 million digital media company is even more difficult. I don’t know them personally, but I’m happy for cofounders Alex Mather and Adam Hansmann. They entered the arena and tried to change the industry forever.

Many great people work at The Athletic. I’m certainly rooting for them to succeed.

I hope everyone has a great weekend, and we’ll talk on Monday.

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