The Athletic Raising Capital at a $500 Million Valuation, But Questions About the Company Remain
The Information has reported that The Athletic is looking to raise another $50 million (raised $90 million to date) at a valuation “north of $500 million.” The company is expected to use the capital on international expansion, the development of new domestic markets, brand advertising and the creation of new content. CEO Alex Mather previously projected that the digital media startup would have 1 million subscribers by the end of 2019.
Howie Long-Short: At $500 million plus, The Athletic is looking to raise at a figure at least +66.6% higher than it valued itself at back in May (when it raised $22 million). Those that buy into the company's half-unicorn status will point to the “rising subscription numbers, a definitive track record of successful subscription based businesses and note that the multiple (12x-15x) is in line based on future revenues.” One well-connected private equity investor explained, “if [The Athletic] has 600,000 subscribers (it reported more than 500,000 in July) paying $64/per, then they have the revenue to support the valuation.” Expect supporters to also note that less than five years ago, digital media darlings (like: Vice) were claiming valuations of over $5 billion; by that measure, The Athletic's number looks conservative.
The Athletic maintains that every market they’ve been in for more than one year is profitable (of course, none of that data has been audited). Taking on capital should help the company grow its subscription numbers, but “they’ll also raise pricing over time and that too should help to increase revenues substantially.” Of course, with subscription services popping up like weeds (think: Netflix, Disney+, DAZN etc.) it remains to be seen how much (and for how long) fans are willing to pay for written sports content.
The podcast business that The Athletic is launching can be very profitable; The Ringer's podcast network generated $15 million in ad sales last year. “[The Athletic] now has 60 podcasts. If each is recorded 2x/week, that’s 480 podcasts/mo. With the right people and right ad network, [the success The Ringer has found] can be replicated.” Our source isn't wrong - there are more advertising dollars being allocated to podcasts than ever before - but finding transcendent personalities is easier said than done (i.e. it’s not just a volume play, listeners need to tune in). Remember, Simmons’ pod generates more than half the ad revenue his company brings in from the medium.
The Athletic’s challenge will be to convince investors that the company should be valued like a subscription-based technology business and not the aggregate of newspaper writers that it is. Remember, Jeff Bezos was able to take down the Washington Post (circulation 360,000, +/- 1.27 million digital subscribers) for just $250 million. The national sports site will argue that the subscription model (see: Netflix, Spotify, Stitch Fix) is a proven path to profitability and note that their yield/sub is more than twice that of a legacy outlet, but the company still loses money and the market has rejected loss leaders of late.
Fan Marino: Ultimately, the problem with The Athletic business model is that sports fans can get comparable (or better) coverage on their teams for free elsewhere. As a New York pro sports fan, there’s little reason to subscribe; there are four or five newspapers within the market employing established beat writers to cover the local teams. The Athletic could theoretically be useful as a source for Arizona Wildcats coverage (I live in NJ, so I don't subscribe to the local papers), but the reporter assigned to the program lacks the contacts needed to provide real insight (it’s his first year in Tucson). By comparison Brad Allis, Anthony Gimino and Gary Randazzo (the triumvirate that makes up the Arizona Maven) have been around the University for more than 60 years and regularly break news. The subscription model only works for a media company if it can regularly create unique content that's the audience 'must have'.
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