The Athletic Can Prove the Haters Wrong


(Bloomberg Opinion) -- What do you get if you combine $90 million of venture capital funding, 430 sports writers and more than just a splash of Silicon Valley bravura?

The answer might just be a model for how to make money in digital news. Subscription-based sports website The Athletic has encountered plenty of skepticism since its foundation three years ago by two veterans of fitness app Strava. But it continues to grow readership apace and attract investment and writers alike.

Wariness is understandable: the subscription-based sports news website is hiring hundreds of good journalists on generous salaries, sometimes more than $120,000, to write thoughtful stories. It extended coverage to England’s Premier League soccer last month, adding almost 60 journalists. Surely there’s a hitch?

Reverse engineering the firm’s finances suggests that it’s not far off profitability, and has a path to a sustainable business. Indeed, it’s likely to be just about covering its current costs if The Athletic hits its target of one million subscribers by year end. That’s an ambitious goal, given that the New York Times still only has 3.8 million subscribers. But between July and August the Athletic sprinted toward the finish line, adding 100,000 subscribers. Three years since its founding, it has attracted a total of 600,000 paying readers.

The website’s approach points at how, after two decades of turmoil, the news business is slowly inching towards business models that work by focusing on high quality, specialized content that readers are willing to pay for.

In an interview with Bloomberg Businessweek last month, the company said subscribers paid fees averaging $64 a year. Yes, that’s more than the cost of a $60 one-off annual subscription, but that’s because some people are paying by the month, often at a much higher rate than if they signed up for a year. Based on that average revenue per user (ARPU), The Athletic has a sales run rate of about $38 million. If it reaches its full-year subscriber target and that ARPU isn’t too heavily diluted by introductory discounts, sales will hit $64 million.

I estimate the website’s annual costs to be a little over $60 million. Right now, that suggests a deficit of at least $20 million. While my calculations might be slightly out, it’s still a decent yardstick to indicate that by year end, it’ll be close to profitability. And the company does have the buffer of $90 million of venture capital money, including cash from Peter Thiel’s Founders Fund.

The Athletic Can Prove the Haters Wrong

Slowly, we seem to be reaching the consensus that the best way to make money from written journalism is simply to get readers to pay for it. The past 12 months have been a brutal one for publications funded by online advertising: the U.S. news business cut the most roles in the first five months of the year since the 2009 recession, with BuzzFeed, Vice Media and Verizon Communications Inc. all firing staff.

Publications that specialize in a particular subject and charge a subscription fee are a bright spot. At one end are those providing professional information for a significant sum. An annual subscription to the Financial Times will set you back 207 pounds ($254). Tech business site The Information charges between $399 and $749. Ion Investment Group meanwhile agreed to pay 1.4 billion pounds this year for the group that owns Mergermarket and Debtwire – providers of financial news and data.

At the other end are the likes of The Athletic, with a coverage area too broad to be quite considered a niche, but which can attract a large audience happy to pay a smaller fee. The pollster Gallup estimates that 59% of Americans are interested in sports. That equates to some 169 million U.S. adults. So far, The Athletic has signed up just 0.4% of them as subscribers.

A word of caution to The Athletic and its co-founders: don’t be greedy. Chief Executive Officer Alex Mather generated warranted opprobrium when he told the New York Times in 2017 that the he would “wait every local paper out and let them continuously bleed, until we are the last ones standing.” It’s the sort of line that resonates well when pitching prospective VC investors, but plays poorly elsewhere.

The same goes for aligning the pace of growth with spending. Cautionary tales abound, and the losers are most likely to be the journalists ultimately deemed superfluous when money has been spent too quickly. At a certain point, the company will have to generate a profit. If it expands too quickly and hires too many, then has to shrink, the journalists will be the first to suffer by losing their jobs.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

©2019 Bloomberg L.P.

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