The Athletic co-founders Adam Hansmann and Alex Mather
Source: The Athletic

In Sept. 2020, The Athletic announced it had reached 1 million subscribers. Co-founder Alex Mather talked about what it would take for him to sell.

“We just don’t think about exit, and we don’t know the upside here,” Mather said. “There are very few companies doing what we’re doing. The New York Times is the tip of the spear, and they’re growing faster than ever. We don’t know what our ceiling is. When we feel like we know what our ceiling is, then it’s time for Adam and I to have a chat. But we have not come close to having a chat.”

By March 2021, six months later, The Athletic had begun talks to merge with Axios. Two months later, The New York Times began talks to buy The Athletic. That kicked off a broader sales process, leading to interest from companies including Amazon, Conde Nast, DraftKings and private-equity firm TPG Capital, CNBC has learned.

It’s unclear exactly why Mather and Hansmann changed their minds so quickly, but the company needed a new capital injection. The Athletic burned through about $100 million between 2019 and 2020, while only bringing in $73 million in revenue over the same time period, as first reported by The Information. The Athletic has never been profitable.

The Athletic looked into raising more capital, but the cost of financing and further dilution to the founders and other investors pushed Hansmann and Mather in the direction of selling, according to people familiar with the matter.

Still, several investors and advisers close to the company privately urged Mather and Hansmann not to sell, according to people familiar with the matter, who asked not to speak publicly because the discussions were private. Some of this consternation bubbled up this week when when venture fund Powerhouse Capital sent a letter to its limited partners acknowledging it didn’t want The Athletic to sell.

“While we believe that there is still more value to unlock for The Athletic platform, it now appears that the NY Times gets to build on that foundation,” Powerhouse wrote in a memo first reported by Axios and confirmed by CNBC.

The following is an account of The Athletic’s route to a sale. A spokesperson for The Athletic declined to comment.

The sale decision

While The Athletic always stayed focused on sports, that was never the ultimate plan for Mather and Hansmann, according to people familiar with their thinking. In The Athletic’s early days, it looked into merging with Nate Silver’s to combine sports and politics verticals, and even toyed with the idea of partnering or merging with America’s Test Kitchen, bringing together food and sports under one roof, said the people, who asked not to be named because the discussions were private.

In March 2021, Axios approached The Athletic with the idea of merging, according to people familiar with the matter. The two new-ish journalism companies admired each other’s work and were focused on expanding local coverage.

Axios would have been the front facing company with The Athletic folded underneath, one of the people said. Mather and Hansmann were interested in the idea if the combined company could then go public via SPAC, which were hot at the time. But Axios co-founder and CEO Jim VandeHei was skeptical of SPACs. Ultimately both sides decided to walk away.

Once The Athletic’s interest in merging became public knowledge, the New York Times approached The Athletic to buy the company. But those talks also broke down when the two sides couldn’t come to an agreement on value. The New York Times was offering about $500 million, according to people familiar with the matter. The Athletic had last raised capital at a $530 million valuation in Jan. 2020. Several people close to The Athletic such as investors and advisors felt The New York Times was undervaluing the company.

The Athletic decided to have Liontree, a boutique media M&A bank, to evaluate potential sale options while also considering alternative funding. Liontree made a presentation to The Athletic estimating it could find buyers willing to pay between high $500 millions and low $700 millions, one of the people said.

Amazon, Conde Nast and DraftKings showed interest, according to people familiar with the matter. Amazon’s interest stemmed partially from its recent push into broadcasting games, including Thursday Night Football, one of the people said. Having a well-trafficked sports landing page to promote and analyze games could provide synergies with its live game broadcasts. Spokespeople at Amazon, Conde Nast and DraftKings didn’t respond to requests for comment.

After kicking the tires, those companies never ended up as serious buyers, three of the people said. Private-equity firm TPG became the Times’ biggest challenger to buy The Athletic, the people said. Selling to a private equity firm would have been a much harder challenge to sell its employees, who may be concerned about losing their jobs, two of the people said. A spokesperson at TPG declined to comment.

The New York Times wasn’t initially invited to participate in the new auction, given its prior talks had died. But Chief Executive Meredith Levien decided to return to the table. As it became clear The Times would only have to bump its initial offer by about 10%, a deal came together. Given the company’s strong journalistic reputation and potentially unappealing terms around raising more capital, Hansmann and Mather agreed to the sale.

Some close to the company view the sale as a clear success, one of the largest exits in the history of digital media. Two founders built a company from scratch and turned an idea — a national subscription sports journalism product with a focus on in-depth local reporting and analysis — into a $550 million entity. The Athletic sold at a “frothy 10x price/revenue valuation multiple,” according to research firm CB Insights, emphasizing The Athletic got a good price for a company with less than $50 million in annual revenue in 2020.

Supporters bring up how The New York Times, clearly adept at growing digital subscribers, is a perfect fit as a buyer for a sports journalism site that prides itself on quality journalism. The Athletic wants to grow globally, and so does The New York Times. The Athletic wants a safe home for its journalists, and what company could take more pride in its journalists than The New York Times? The Athletic wants to expand into podcasts and digital video and push the envelope on digital form, and The New York Time has already asserted itself as a leader in those areas.

On the other side, skeptics of the deal talk about how The Athletic sold its vision short by selling now. Several investors told Mather and Hansmann they felt The Athletic could be a multibillion dollar company. As a separately run entity within The New York Times, it still might. But if it happens, it will be New York Times’ shareholders who see that value gain.

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