After The New York Times walked away from acquiring The Athletic, I could see very few remaining acquisition options for the subscription media company. As I wrote at the time:

It's unfair to compare a B2B company like Politico, which is profitable and generating nine figures from $10,000+ subscriptions to a consumer sports media company losing money, but I thought it would act as a sufficient "top" for what a true valuation warrants.

Acquisition has always been the only real option on the table. If it could raise more money, it would have; however, with the amount of burn it has, it's hard to imagine investors wanting to add cash to the furnace. I have empathy for what the team is trying to do because it's very hard to scale a media company in such a compressed period of time. I certainly don't have the blind conviction to try.

That leaves The Athletic scrambling to find a buyer. According to The Information, a variety of companies have made bids, including FanDuel and DraftKings. The high-level logic makes sense.

Presently, the two brands are spending a lot of money on advertising, but have nothing in an owned media audience. Anytime they want to find new customers, they have to pay publishers. But there has been a real flurry in deal activity from gambling sites picking up sports assets.

For either of these gambling sites, getting The Athletic gives it an owned audience that it can continue to market to over time rather than being reliant on expensive brand campaigns.

But here's the question...

If I'm DraftKings (will use them as a proxy because they're public), why am I choosing to buy The Athletic of all sports media sites?

One could say all the traffic, but The Athletic is unique here because it requires a paid subscription. According to SimilarWeb's Google Analytics connection, The Athletic had 20.11m sessions in September. My suspicion is that this is a smaller group of people coming back repeatedly throughout the month rather than anything close to 20m uniques. On the other hand, maybe it does have a very high number of unique visitors. The Athletic has so many journalists, it's certainly possible that they've got an immense top of funnel.

My suspicion is that DraftKings' first instinct would be to immediately take the paywall down and start accruing a much larger audience, trying to get people to create free accounts so it knows what teams and sports readers like. This would create an almost perpetual top of the funnel for DraftKings to grow its business.

The problem with getting rid of the paid subscription is that it suddenly adds $100m+ in costs. According to an older story from The Information:

If revenue is $77 million this year and it's still going to burn $35 million, that means its non-revenue total cost is $112 million. And that cost doesn't suddenly go away because so much of the money is tied up in cost. It's possible that DraftKings could come in and dramatically cut costs—aka start letting people go—but this puts The Athletic into a death spiral that is impossible to get out of.

So, that means DraftKings has to keep the subscription up for a period of time to try and keep the cost of the business from destroying its cash position. But that then interferes with its ability to maximize the top of funnel.

Maybe that's okay, though. DraftKings could be looking at The Athletic's million+ paying subscribers as prime targets for its betting platform. My instinct tells me that this isn't really the case, though. If you're spending $60-70 a year in sports content, it's likely that you're aware of the gambling opportunities. Therefore, this feels like more of an engagement and retention play for DraftKings. Does owning something like The Athletic drive an increase in gambling activity?

Another option could simply be that DraftKings creates two currencies for getting access to The Athletic: paying with dollars or paying with betting activity. Could DraftKings create an offer that basically says, "bet $50 on a game and get The Athletic for free for a year?" That's pretty compelling.

I dug into DraftKing's financials and there's something compelling there. In Q2, it had 1,123,000 average monthly unique players (MUP). Its average revenue per MUP was $80, up from $63 in the same period last year. Compare that to The Athletic. It expects $77m in revenue this year and my guess is it finishes the year at 1.3 million subscribers. That brings us to an ARPU of $59. DraftKings basically gets a 30% premium if it can convert a paying subscriber into a paying gambler.

Having a media asset to promote to those 1,123,000 average MUPs would keep them more engaged with the platform and might actually get them gambling more. That, in turn, would increase ARPU and make the asset even more profitable for The Athletic.

But is it enough? And all of this is highly speculative considering DraftKings doesn't actually own the asset.

The reality for The Athletic is sadly, very simple, though. The number of available buyers to do a deal like this is very small. The gambling sites are probably their best bet. But they're not going to pay nearly 10x revenue for this (it's reported that The Athletic wants $750m). The gambling sites have all the leverage. The Information reported a month ago that The Athletic had eight months of runway remaining; now it's seven.

If I was a betting man, I'd say that $350 million is the top for this. That would be about $150 million less than its last fundraising round. That would be equal to approximately two-quarters of DraftKing's marketing spend before the yearly cash burn.

I said it last time and I'll say it again now. I admire what The Athletic has tried to do. However, it is not in a position of strength. It either needs to cut costs aggressively so that it can stay alive independently or, it's going to have to take a significant cut in its valuation. The New York Times was its best option for a media buyer interested in a growing subscription business. But those times are behind us now.

Thanks for reading today's issue. If you have thoughts, please reply. Or, become a premium member, and join the AMO Slack channel. You can ask questions or even DM me directly. Thanks again and have a great week!