Internal sale of The Athletic to The New York Times

Athletic co-founders Adam Hansmann and Alex Mather

Source: The Athletics

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

“We just don’t think about the exit, and we don’t know the benefits here,” Mather said. “There are very few companies doing what we do. 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 have the feel like we know what our ceiling is, so it’s time for Adam and I to have a conversation. But we’re not about to have a conversation.”

In March 2021, six months later, The Athletic had entered into talks to merge with Axios. Two months later, The New York Times entered talks to buy The Athletic. That kicked off a broader sales process, attracting 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 fresh injection of capital. Athletic spent around $100 million between 2019 and 2020, while only bringing in $73 million in revenue over the same period, as The Information first reported. Athletic have never been profitable.

Athletic sought to raise more capital, but the cost of funding and additional dilution for founders and other investors pushed Hansmann and Mather to sell, 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 that dismay erupted this week when venture capital fund Powerhouse Capital sent a letter to its sponsors acknowledging that it did not want The Athletic to sell.

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

What follows is an account of The Athletic’s journey to a sale. A spokesperson for The Athletic declined to comment.

The decision to sell

While The Athletic has always remained focused on the sport, it was never the ultimate plan for Mather and Hansmann, according to people familiar with their thinking. In the early days of The Athletic, he considered merging with Nate Silver’s 538.com to combine the sports and politics verticals, and even considered the idea of ​​partnering or merging with America’s Test Kitchen, bringing together food and sport under one roof, the people said. , 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 journalism companies admired each other’s work and focused on expanding local coverage.

Axios would have been the front 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 through SPAC, which was in vogue at the time. But Axios co-founder and CEO Jim VandeHei was skeptical of SPACs. Eventually, both parties decided to walk away.

Once The Athletic’s interest in the merger became public knowledge, The New York Times approached The Athletic about buying the company. But those talks also broke down when the two sides couldn’t reach an agreement on value. The New York Times was offering about $500 million, according to people familiar with the matter. Athletic had last raised capital at a valuation of $530 million in January 2020. Several people close to Athletic, such as investors and advisers, believed that the New York Times undervalued the business.

Athletic decided to bring in Liontree, a bank specializing in media mergers and acquisitions, to assess potential sale options while considering alternative financing. Liontree made a pitch to The Athletic estimating he could find buyers willing to pay between $500 million and $700 million, one of the people said.

Amazon, Conde Nast and DraftKings have expressed interest, according to people familiar with the matter. Amazon’s interest stems in part from its recent push into streaming games, including Thursday Night Football, one of the people said. Having a well-trafficked sports landing page to promote and analyze games could create synergies with its live game broadcasts. Spokespersons for Amazon, Conde Nast and DraftKings did not respond to requests for comment.

After slashing the tires, these companies never became serious buyers, three of the people said. Private equity firm TPG has become the Times’ biggest challenger to buy The Athletic, the people have said. Selling to a private equity firm would have been a much tougher challenge than selling its employees, who might fear losing their jobs, two of the people said. A TPG spokesperson declined to comment.

The New York Times was not initially invited to participate in the new auction, given that its previous discussions had died. But general manager Meredith Levien decided to return to the table. As it became clear that the Times would only have to increase its initial offer by about 10%, a deal was struck. Given the firm’s strong journalistic reputation and potentially unattractive terms regarding raising additional capital, Hansmann and Mather agreed to the sale.

Some insiders consider the sale a huge success, one of the biggest releases in digital media history. Two founders built a company from the ground up and turned an idea – a national subscription sports journalism product focused on in-depth local reporting and analysis – into a $550 million entity. The Athletic sold at a “sparkling price/revenue valuation multiple of 10x”, according to research firm CB Insights, pointing out that the Athletic fetched a good price for a company with less than 50 million dollars in annual revenue in 2020.

Proponents explain how The New York Times, clearly adept at increasing digital subscribers, is a perfect fit as a buyer of a sports journalism site that prides itself on quality journalism. The Athletic wants to expand globally, as does The New York Times. Athletic wants a safe home for its reporters, and what company could be more proud of its reporters than The New York Times? The Athletic wants to expand into podcasts and digital video and push the boundaries of digital form, and The New York Times has already established itself as a leader in these areas.

On the other side, skeptics of the deal talk about how The Athletic sold their vision short by selling now. Several investors told Mather and Hansmann that they believe The Athletic could be a multi-billion dollar business. As a separately managed entity within The New York Times, that could still be the case. But if that happens, it will be the shareholders of The New York Times who will see this gain in value.

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