NYT CEO: Athletic investment is a bet on subscriptions

The New York Times on Thursday said it was using more than half of the whopping $1 billion in cash on its balance sheet to buy The Athletic, a sports media startup that currently loses a lot of money.

Why it matters: "It's about accelerating our long-term strategy," Times CEO Meredith Kopit Levien told Axios. "If we didn't think it was a sustainable, engaging product already, we wouldn't be here having this conversation today."

• The Athletic has 1.2 million subscribers, making it "the fifth-largest English-language digital journalism provider by subscribers," Levien told investors. With nearly 8 million digital subscribers, The Times is the largest on that list.

By the numbers: The Athletic is one of the largest sports journalism companies in the world, with 450 journalists. By comparison, there are roughly 45 sports journalists at The Times. Executives say there's little audience overlap between the two firms.

Yes, but: The Athletic's financial picture is less rosy. In 2021, the company lost $55 million and made just $65 million. While Levien forecasts a "slight improvement" in operating losses in 2022 — and smaller losses in 2023 and 2024 — she doesn't anticipate The Athletic turning profit for another three years.

• Investors in The Athletic's last fundraising round won't see a major return with this sale. The Athletic's series D investors valued the company at roughly $500 million two years ago. It sold for $550 million Thursday.
• Asked how The Times concluded what The Athletic was worth, Levien said, "The price is based on the kind of value we believe we can build, what we think they're worth and what we think we can build in our long-term strategy."

Be smart: One of the reasons The Athletic loses so much cash is because it spends enormous amounts of money to recruit top-tier sports journalists at the local level in the U.S., Canada and Europe.

• Asked if The Times planned to lay off any Athletic employees after the deal, Levien noted, "We bought this business with real ambitions around accelerating our growth strategy and our plan is to keep investing in it."
• "We see an opportunity to make it even bigger," said David Perpich, head of standalone products at The Times.
• Perpich will become the publisher of The Athletic, while co-founders Alex Mather and Adam Hansmann will stay on after the deal as co-presidents.

The big picture: The Times has had an extraordinary run over the past few years. It's well on track to meet its 10 million paid digital subscriber goal years ahead of schedule.

• Levien said the Times has now adjusted that goal to a "meaningfully larger" number.
• But its subscriber growth has slowed in the post-Trump era. And to ensure it stays competitive, it needs to invest in new products that it can add to its subscription bundle, which currently includes core news, cooking, games, audio, and its consumer reviews site, Wirecutter.

Between the lines: The Times in the past has used acquisitions to fuel its growth strategy, with mixed success.

• It bought the Boston Globe for $1.1 billion in 1993, only to sell it for around $70 million in 2013. It bought About.com in 2005 for $410 million in cash and sold it to Barry Diller's IAC for about $300 million in cash seven years later.
• More recent acquisitions, like Audm, Serial Productions, HelloSociety, Fake Love and Wirecutter, have been much smaller in scope.

What to watch: Levien said The Times' first priority for The Athletic is to grow its subscription business, but eventually The Times plans to help introduce more advertising to The Athletic.

• Perpich said for now, the company doesn't have any plans to change The Athletic's $70 annual subscription fee. "There's a lot of room ahead for them to figure out what makes sense."

Go deeper: The New York Times to acquire The Athletic for $550 million in cash