Anytime there are multiple stories in a month about a company potentially being acquired, you know it's very likely that the company is shopping itself and using the press to drum up excitement. In May, it was Axios and The Athletic merging (which I wrote didn't really make sense).

And now it's a rumored deal where The New York Times would acquire The Athletic. According to Axios:

Unlike the mashup with Axios, an acquisition by The New York Times is probably one of the best takeover opportunities on the market today for The Athletic. And if done correctly, it could be a smart deal.

Additionally, when comparing to the Axios deal, which was trying to mash two different businesses together, this opportunity gives The Times an additional subscription product to work with. It also comes with baked-in synergies that would, in many respects, help pay for some of the deal.

If we look at The Times' strategy, it boils down to creating different subscription products to hit its very achievable goal of 10 million subs by 2025. Where critics seem to get stuck is that they assume this is only news subscriptions. On the contrary, The Times has done a good job with its cooking and crosswords business, both of them contributing new subscriptions—even if it comes from the same customer.

But what The Times lacks is sports. It does create some reporting, but it's not very deep. Sports is inherently local and The Times isn't really a local newspaper. Therefore, users that subscribe to The Times are likely getting their sports news elsewhere; perhaps even The Athletic.

By adding The Athletic to the repertoire, The New York Times has one of two choices. First, it could just create a standalone subscription similar to its other non-core subscription products. Second, it could bundle The Athletic into the core subscription. My suspicion is that it'll want to keep it as a separate offering. The content is different enough to warrant having one more product.

But there is one reason why The New York Times might want to bundle it together with the core product. According to this article on Columbia Journalism Review from last summer:

Because The New York Times is already the go-to news subscription in most localities, adding a sports product that actually has some oomph behind it could encourage additional users to begin paying. A subscription to NYT costs over $200 a year, so these are highly valued subscriptions.

This could also be a precursor to The New York Times starting to invest more aggressively in its local strategy. Could it look to hire a team of reporters in Dallas, for example, and try to compete head-on with the Dallas Morning News? Could the future of The New York Times include a bunch of local publications? We're seeing others try to do this in newsletter format. Maybe The Times wants to step in as well.

It'll probably be some time until we learn anything about that sort of ambition. Therefore, on the surface, this is just The Times trying to increase the ARPU of its current subscribers and, potentially, add new subscribers. The Athletic plays a part in both of those goals.

Here's how...

During the last earnings release, Times' CEO Meredith Kopit Levien said that the company had hit 100 million registered users. These are people who have read an article or two and then been presented with a registration wall. In exchange for creating a free account for The New York Times, the user gets a few additional articles to peruse.

It is far easier to convert a known user to a paid subscription than an anonymous one. For starters, you can target specific stories to people depending on their viewing habits. But the big reason is because you can email them. Email is the most efficient way of converting users to a paid subscription. Therefore, The Times has invested a lot of time and effort in building that list of registered users.

From there, it's just great consumer marketing. The Times has a ton of data on its audience, so it can pinpoint the users that are most likely to convert to a paid sports subscription. It can send unique offers to the cohorts of free registered and paying subscribers, encouraging them to sign up for the new sports offering.

This database of registered users is something The Athletic doesn't appear to have. Nearly all of its calls to action are about getting you to pay. My suspicion is that this would change after the acquisition. Because it's easier to convert a known user, there would be a bigger emphasis on building that free database.

But it's not like The Athetlic would be coming to this without its own customers. The Athletic has 1.2 million paying subscribers. Could any of them be incentivized to sign up for Crosswords, Cooking, or the Core news product? Remember, this is an ecosystem play for The New York Times. They want to increase how much each of their users is spending with the company irrespective of if it's news or something else. For example, let's say 10% of The Athletic subscribers go on to get a Crosswords subscription. That'd be an additional $4.8m in revenue. If only 2% get a Core subscription, it's nearly $5m in revenue. The goal is to get subscribers to pay for more than one subscription or just get the super bundle.

So, what we have is a complementary subscription product (The Athletic) joining a more advanced consumer marketing company (The New York Times). The outcome here is that you would expect the rate of new subscriptions to The Athletic to increase because The Times has put its audience behind it.

But this brings us to the conversation about value. Prior to the pandemic, The Athletic raised $50m at a $500m valuation, which in hindsight likely helped the business weather Covid rather nicely. It has 1.2m subscribers, generates $80m in revenue, and is not profitable. Is that worth $500m? Is it worth a premium to that?

Although there are a lot of variables here, the big one that I am looking at is growth. In September, CNBC reported that The Athletic had hit 1m subscribers. Fast forward to May and it now has 1.2m subscribers. That looks pretty good, but when taken in context, growth is actually slowing some. When Bloomberg reported on The Athletic in 2019, it got access to the company's growth:

From 2018 to 2019, it grew by 289%. From January to September 2019, it grew by 71.4%. It grew by 66.7% from September 2019 to 2020. From September 2020 to May 2021 (when this was first reported), it has grown by an additional 20%. If we assume The Athletic grows at the same pace, it'll get to September 2021 at approximately 1.3m subscribers—a 30% increase.

There could be a multitude of reasons for the slowing growth. First, growth naturally slows as you get bigger. Second, Covid did slow some sports down (though that excuse I believe has run its course). Third, because it doesn't have much of a free database to market to, it has fewer marketing channels to work with. I'm sure there are many others as well.

But that growth has to be looked at very carefully. The Times has to ask itself is how big does it feel the sports market can be. Does it think there are 5 million people out there that want to pay for sports news? Does it think, with its more advanced consumer marketing capabilities, it can help The Athletic hit those goals? Or, are we already starting to reach the point where growth slows considerably?

There aren't many buyers out there for The Athletic. Growing large is great. However, unless you're able to get profitable on your own, the number of possible exits shrink considerably. The New York Times might be one of two or three possible acquirers. And honestly, if any media company can help make The Athletic bigger than it already is today, it's going to be The New York Times.