Earlier this week, Axios reported that The New York Times (NYT) was “looking into a potential acquisition of The Athletic.” The story followed a Wall Street Journal piece that declared merger talks between the subscription sports site and Axios to be over and also pegged the NYT as the subsequent ‘leading contender’ for the digital sports media property. Vox is also said to be kicking the tires on The Athletic.
The New York Times Company would seemingly be an ideal landing spot for the once high-flying startup. “[They are] already in the subscription business and [from a prestige standpoint], they are one of the world’s preeminent media companies,” said John Kosner (president, Kosner Media).
It is less clear why the NYT would be interested in making a big bet on a growth business that has seemingly stalled, is losing money and competing in an extremely competitive digital media environment. The New York Times Company declined to comment, saying, “As a general matter of policy, we do not comment on rumors about potential acquisitions or divestitures.” The Athletic did the same, stating it “does not comment on rumors or speculation in the market.” But conversations with Kosner (former EVP, digital and print media at ESPN) and The New Consumer founder Dan Frommer indicated that corporate objectives, portfolio fit and a successful track record of launching subscription-based products are likely behind the company’s investment thesis.
Our Take: New York Times CEO Meredith Kopit Levien publicly set a goal to reach 10 million digital subscribers by 2025. At last count (Q1 ’21 earnings), the NYT reported 6.9 million digital subs (includes: cooking and crossword products). “If you’re the New York Times and you set that goal for 2025, it’s hard to imagine you’re going to get there organically,” Kosner said, noting that new digital news subs are expected to decelerate now that former president Donald Trump is out of office. Rolling up The Athletic and their 1.2 million subs would push the NYT closer to its target.
It’s logical that the New York Times Company would look to add another complementary subscription product to the portfolio, as non-news subscribers are making up a greater portion of new subs than ever before. As Kosner explained, “Getting closer to the customer and serving them in different ways is a bigger business opportunity [than trying to sell news subs exclusively].” Frommer noted that with more subscription products the Times may be able to offer a broader consumer bundle.
An acquisition of The Athletic could in theory also strengthen The New York Times’ news product and support their international ambitions. “The Times has sort of abandoned sports, especially New York sports, and The Athletic has fairly comprehensive coverage of sports, both in this country and football abroad,” Kosner noted. A purchase of the digital outlet “would add a brand known to sports fans, fill a niche and fit into their plans to grow international subscriptions,” he explained.
For all of the positives The Athletic would bring, concerns about the business exist. User growth has slowed (granted, the pandemic likely had something to do with that) and despite bringing in around $80 million in 2020 revenue, the company is still not profitable. There are also questions about the size of the staff—600 full-time employees, including 400 editorial staffers—and how valuable its subscribers are, considering a significant portion remain on discounted plans. It is not clear the company will ever make money.
If there is a reason to believe The Athletic would become profitable under the NYT tent, it would be because the legacy media company has “a very impressive, robust technology and product division and is ahead of the curve [relative to the competition] at productizing and building businesses around different consumer products,” Frommer said. “They also have a huge breadth of experience, and depth of experience, developing and selling subscription products to consumers.”
One could argue that with more than 100 million people in the U.S. identifying as sports fans, The Athletic has barely made a dent in its total addressable market. But Kosner reminds: “The Athletic doesn’t just compete with other sports media subscription services. All of these subscription products co-exist together” (think: Netflix, Amazon Prime, Spotify, Audible, Hulu, The New York Times). It’s not clear there are enough people willing to choose The Athletic over those other digital products.
That said, Frommer can see how acquiring The Athletic could make sense to the NYT, even without a short-term path to profitability. “A company like The New York Times probably plans to be in business for hundreds more years, so they’re in a position to make 20-, 30-year bets,” he said. “If the bet is Americans will continue to love sports in 30 or 40 years, and [they] can own the dominant digital sports media brand, perhaps that’s a worthwhile [wager]–especially if they can buy [the company] with stock.” $NYT shares are trading at their highest level in more than 15 years.
The Athletic raised a $55 million Series D in January 2020 at a $475 million valuation (according to PitchBook). If one were to assume that any deal would ensure that those investors would not lose any money, the purchase of the sports site would be the second most expensive acquisition in Times history (behind only the $1.1 billion it paid for The Boston Globe in 1993). Of course, the company’s track record with mergers and acquisitions isn’t great. It ended up dumping the Globe for just $70 million, lost $110 million on the sale of About.com and saw two marketing companies it bought go under. In fairness, Levien represents new leadership; she was not in charge when those failures occurred.
For the record, Axios wrote that The Athletic has yet to hire bankers, meaning it is unlikely there is a deal in place with the New York Times Company.