Amazon and DraftKings were among suitors keen on The Athletic before sale to The New York Times

In Sept. 2020, The Athletic announced it had reached 1 million subscribers, and an upbeat co-founder Alex Mather talked about what it would take for him to sell.

“We just don’t think about exit, and we don’t know the upside here,” Mather said at the time in a CNBC interview. “There are very few companies doing what we’re doing. 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 feel like we know what our ceiling is, then it’s time for [fellow co-founder Adam Hansmann] and I to have a chat. But we have not come close to having a chat.”

By March 2021, six months later, The Athletic had begun talks to merge with Axios. Two months later, The New York Times began talks to buy the subscription-based sports website. That kicked off a broader sales process, leading to interest from suitors 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 dramatically, but one thing was clear: The company needed new capital injection.

The Athletic burned through about $100 million between 2019 and 2020, while only bringing in $73 million in revenue over the same time period, as first reported by The Information. The Athletic has never been profitable.

The Athletic looked into raising more capital, but the cost of financing and further dilution to the founders and other investors pushed Hansmann and Mather in the direction of selling, according to people familiar with the matter.

Still, several investors and advisors close to the company privately urged Mather and Hansmann not to sell, according to people familiar with the matter, who asked not to be named because the discussions were private. Some of this consternation bubbled up this week when venture fund Powerhouse Capital sent a letter to its limited partners acknowledging it didn’t want the sports site to sell.

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

The following is an account of The Athletic’s route to a sale, with the help of people familiar with the matter. A spokesperson for The Athletic declined to comment.

While The Athletic never strayed from its sports focus, Mather and Hansmann did have other plans, according to people familiar with their thinking. In The Athletic’s early days, they looked into merging with Nate Silver’s 538.com to combine sports and politics, and toyed with the idea of partnering or merging with America’s Test Kitchen, bringing together food and sports under one roof, said the people who asked not to be named because the discussions were private.

Then in March 2021, Axios approached The Athletic with the merger idea, according to people familiar with the matter. The two relatively new journalism companies admired each other’s work and were focused on expanding local coverage.

Axios would have been the front-facing 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 via a special purpose acquisition company, or SPAC. But Axios co-founder and CEO Jim VandeHei were skeptical of SPACs, according to the sources. Ultimately both sides decided to walk away.

Once The Athletic’s interest in merging became public knowledge, The New York Times approached The Athletic to buy the company. But those talks also broke down when the two sides couldn’t come to an agreement on value. The New York Times was offering about $500 million, according to people familiar with the matter. The Athletic had last raised capital at a $530 million valuation in January 2020, and several people close to The Athletic, such as investors and advisors, felt The New York Times was undervaluing the company.

The Athletic decided to have Liontree, a boutique media M&A bank, to evaluate potential sale options while also considering alternative funding. Liontree made a presentation to The Athletic estimating it could find buyers willing to pay between a high of $500 million and a low of $700 million, one of the people said.

Amazon, Conde Nast and DraftKings showed interest, according to people familiar with the matter. Amazon’s interest stemmed partially from its recent push into broadcasting games, including “Thursday Night Football,” one of the people said. Having a well-trafficked sports landing page to promote and analyze games was seen as providing synergies with the live game broadcasts. Spokespeople at Amazon, Conde Nast and DraftKings didn’t respond to requests for comment.

After kicking the tires, those companies didn’t emerge as serious buyers, three of the people said. Instead, a fourth party, Private-equity firm TPG, became the Times’ biggest rival in The Athletic sweepstakes, the people said. But a buyout firm owner was not seen to be favored by website employees, whose jobs could have been threatened, two of the people said. A spokesperson at TPG declined to comment.

The New York Times wasn’t initially invited to participate in the new auction, given the prior talks had died. But Chief Executive Meredith Levien decided to return to the table. As it became clear that The Times would only have to bump up its initial offer by about 10%, a deal came together, sources said. Given the company’s strong journalistic reputation and potentially unappealing terms around raising more capital, Hansmann and Mather agreed to the sale.

Some observers close to the company view the sale as a clear success, one of the most lucrative exits in the history of digital media. Two founders built a company from scratch and turned an idea — a national subscription sports-journalism product with a focus on in-depth local reporting and analysis — into a $550 million entity. The Athletic sold at a “frothy 10x price/revenue valuation multiple,” according to research firm CB Insights, emphasizing the company made less than $50 million in annual revenue in 2020.

Supporters of The Times’ purchase note that the Gray Lady is now adept at expanding a digital subscriber base and makes for a perfect fit as a buyer for a sports site that prides itself on quality journalism. What’s more, both entities want to expand their global footprint.

Serious sports journalists, too, have found a home at The Times, which takes pride in its professional reputation for excellence. The Athletic also wants to expand into podcasts and digital video and push the envelope in digital forms, which its parent company has shown itself to be a journalistic leader.

Others, though, see it differently. Several investors told Mather and Hansmann, according to sources, that The Athletic could have realized a much bigger vision. They felt that it had the promise of being a multibillion-dollar company.

As a separately run entity within The New York Times, that still might come to be. But if it happens, these critics of the deal say, it will be New York Times’ shareholders who will realize that gain.