The New York Times struck a deal to acquire sports news subscription site The Athletic, the company announced Thursday.
The deal is valued around $550 million and is expected to close in the first quarter of 2022. The Information, which first reported on the agreement before it was announced, first reported the value.
Shares of the Times were down slightly in after-hours trading.
The two companies discussed a deal earlier this year but those talks broke down when the Times offered a price that The Athletic felt was too low, according to a source familiar with the negotiations, who asked not to be identified because the discussions were private. At that point, it hired Liontree to run a formal process.
That lifted the purchase price for The Athletic, the source said. The Times expressed interest in The Athletic because it expands the world of potential Times subscribers, the person said.
The Athletic will continue to operate as a standalone site, the Times said in its announcement. New York Times Company CEO Meredith Kopit Levien told investors on a call following the news that they would initially offer The Athletic as a separate subscription and ultimately offer it as part of a "broader Times bundle." She said in a statement in the release that the vertical would give subscribers more extensive coverage of sports teams and leagues, while the Times offers "sports coverage for a general interest audience."
The Athletic signals a potential future acquisition strategy by the NYT to target niche, community-based journalism enterprises with high-interest audiences willing to pay subscription fees for reporting. Sites that specialize in science, tech, and other specific interests are likely future targets for the Times, said the source who spoke with CNBC.
The deal would also bring a fresh crop of subscribers to the Times. The Times previously set a goal to reach 10 million print and digital subscribers by 2025. Levien said in a statement that the company now reaches for "a goal meaningfully larger than 10 million subscriptions and believe The Athletic will enable us to expand our addressable market of potential subscribers."
As of Q3 2021, the Times reported 8.4 million subscribers. Levien said there's a "modest overlap" in the subscriber base.
Started in 2016, The Athletic said in late 2020 that it had hit 1 million subscribers and that its newsroom was profitable based on subscription revenue and ad sales — though that assessment didn't account for operating costs in other areas of the company. The Times said in the release that The Athletic had 1.2 million subscribers as of December 2021.
Levien told investors on the call that The Athletic's operating losses in 2021 were about $55 million with about $65 million in revenue.
The Times said it expects The Athletic will immediately add to its revenue growth rate. While it anticipates the acquisition will dilute operating profit for about three years, it expects it will add to it after that.
Founders Alex Mather and Adam Hansmann will stay on after the acquisition, according to the release. They will be co-presidents with Mather serving as general manger and Hansmann as chief operating officer. David Perpich, head of standalone products at the Times, will become The Athletic's publisher, with Mather and Hansmann reporting to him.
The Athletic had earlier considered a merger with short-form news service Axios, CNBC reported in March, based on sources familiar with the matter.
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