The Athletic Founder Wants to Eviscerate The Newspaper Industry- Or Not

By TSM

The content subscription is the disruptor du jour and around here it has garnered a ton of passionate debate. Netflix, Hulu, Amazon, and Apple to name but a few have all made massive dents in the traditional media consumption world. Spotify, Apple, Amazon, and others have done the same in music. While bathrobe wearing bloggers have been around for a while now in sports, none have had used the subscription model until recently.

Along came The Athletic which was humming along until a massive opportunity to accelerate their hiring with the layoffs at traditional outlets and suddenly the startup became an upstart. On this site and others, lots of people have been sharing their opinions on the potential of a subscription-based sports outlet and everyone has an opinion about the Athletic specifically.

Full disclosure, I am a paying member of the Athletic.

With the rise of Donald Trump, traditional news outlets, the Wall Street Journal, The New York Times and the Washington Post have seen a dramatic growth in subscriptions- specifically online where there was not so much growth before. In Canada, the Globe and Mail has always had a healthy online business.

Yesterday, the founders of the Athletic were featured in the New York Times:

“We will wait every local paper out and let them continuously bleed until we are the last ones standing,” Alex Mather, a co-founder of The Athletic, said in an interview in San Francisco. “We will suck them dry of their best talent at every moment. We will make business extremely difficult for them.”

As you can appreciate, to the extent there weren’t hard feelings before, the fight was definitely on.

So much so, that Mather took to Twitter to, um, clarify his comments:

However, as is often the case you can’t unring the bell.

As a wise scribe reminded me yesterday, Harold Ballard liked to say “there’s no such thing as bad publicity”.

Mather is a really smart dude, I can’t imagine he didn’t know what he said was going to attract a hornet’s nest of reaction and I’d be willing to bet the statement his clarification got the Athletic the exact result they wanted.

Having said that I reached out to many in the business in Canada and got no shortage of responses. Several would only speak off the record so clearly what they have told me won’t be attributed here, (my favorite of which compared the Athletic to a Ponzi Scheme).

Here are the unedited responses I did receive:

James Mirtle, The Athletic:

To be honest, in Canada, we haven’t hired many folks from newspapers… the sports sections were decimated before we existed.

David Shoalts, The Globe and Mail:

Alex Mather and his fellow Athletic founder remind me of a couple of guys I play beer-league hockey with – they’re not nearly as good as they think they are. Mather’s post-Times groveling on Twitter means nothing to me. He’s just the latest blowhard to find out how bad his blathering looks in black-and-white. The one thing consistent about this group, from the two owners to those running the various sites to at least some of those working there, is that they think they are better than everyone else. If they are still here five years from now, I will offer my congratulations. But for now, get stuffed.
However, there was some truth in what Mather said. Newspapers have often been their own worst enemy in figuring out how to survive today’s media landscape. But we’re still here for now.
As to whether The Athletic’s future is as rosy as its denizens think, that is an interesting proposition. Well, at least Mather and his co-founder can say they have absolutely no experience in that outdated form of journalism the rest of us are stuck with.
The arithmetic so far would have me greatly alarmed if I were an investor. While things looked pretty good last spring, The Athletic has now embarked on a path that left far more wealthy companies than it regretting the day they kicked up their expansion plans. Just ask RBC how that first U.S. expansion plan went in the early 2000s. Hundreds of millions of dollars up in smoke. Or Compaq computers around the same time. Both companies, along with hundreds of others, were done in by too much expansion, too fast.
So it goes with The Athletic and its hiring spree in the last several months. They are expanding way too fast and are now eating into the venture capital. In my opinion, there is no way subscription money is coming close to covering their costs now. Take the Toronto site as an example. Mather and his cronies hold that up as The Athletic’s most successful site with 15,000 subscribers. That includes me, by the way, as I still wish the enterprise success despite its founders. While I am sure most of the subscribers signed up at deeply discounted rates, for the purposes of this exercise let’s say the 15,000 paid $50 a year each. That’s $750,000. The beauty of The Athletic, as they incessantly tell us, is they do not have the overhead of us print dinosaurs. There is no office in Toronto – yet – and their only overhead, like the other sites, is made up of salaries and travel expenses. As best I can tell, there are eight full-time employees in Toronto. As long as they all make less than an average of $75,000 a year, that’s great. It leaves lots of money left over for travel and freelancers. But it seems to me the Toronto site is supporting most if not all of the Canadian operation. That means paying recent hires like Eric Duhatschek, Pierre LeBrun, Arpon Basu, Marc Antoine Godin, etc., until the other sites attract enough subscribers to help foot the bill. You cannot convince me enough subscriptions are being sold across Canada right now to do so.
Thanks to the hiring spree, the salary costs in Canada alone have jumped dramatically. I have at least an idea of what some of those names were making in their previous jobs. I can’t see any of them signing for 50 grand a year. There is also a large number of freelance contributors, at least as many as there are staffers, who are writing frequently enough to command significant dollars. At least they should be if The Athletic pays as well as it likes to let on. And six million bucks in venture capital, if that is really what they have, won’t go far unless those subscription gambles pay off in almost every city. Not when your list of full-time employees in the U.S. and Canada just hit 65, with dozens more freelancers. Those numbers mean you have to hire other employees to do the administration. So that means an office, and more overhead and ….
It is the same story in the U.S., only without the big success story like Toronto. Hiring people like Ken Rosenthal and all those other name journalists doesn’t come cheap. Not all of them were laid off and desperate for work. You can’t convince me even a network of sites can support that, not when the best of them still has yet to hit 10,000 subscribers. By the way, just think about those numbers. What would The Athletic people say about a radio or TV show that could only attract 10,000 listeners or viewers? Or a major metro newspaper with that many subscribers?
Ah, yes, the subscribers. God bless all of us who signed up, eh? Just one thing – almost all of us did so for one of their discount offers. Good luck getting every single one of us to sign up again in a year’s time at full price. You might keep some if they’re on automatic credit-card renewal, but there’s a big selling job ahead. In my case, Mather gave me lots of reasons to reconsider my renewal.
So The Athletic, in my opinion, has to be dipping into the venture capital. I don’t think I have to remind anyone what happens when you become beholden to those guys. I do believe there was mention in the New York Times story of one of them talking about advertising. So much for no auto-play ads in a few years, I’d wager. And those unseemly links between the Toronto Athletic and the Argos? Don’t expect that to lessen when the venture-capital folks get more involved.
I also believe this thing is being built to be sold to some sucker for big money. Why else would some of the prominent new hires be offered shares of the company? So, while Mather and his pals are off counting their money the question becomes whether or not The Athletic thrives or goes the way of most rapidly expanding ventures that become the property of equity funds – a crash and burn.

Damien Cox, Sportsnet and The Toronto Star:

Competition is good. Necessary, really, in the media business. In this specific instance, however, I’m not sure it has to be an us vs. them proposition. Certainly, it doesn’t benefit journalists or journalism to have one entity actively cheering for the demise of others, others that employ thousands and have for decades provided employment, income, benefits and careers for so many. Beyond that, newspapers, while obviously imperfect as a business model, have long been checks on the abuse of power, and still are. They have often provided a necessary service for millions and millions. To root for the demise of newspapers, and the loss of jobs for those who work for them, is to actively root for the demise of democracy. I would urge the entrepreneurs of brand new media businesses to respect those existing businesses that have trained those they now want to hire, have been around much longer and still employ many who have accomplished a great deal more.

Bruce Arthur, The Toronto Star:

Like a lot of people, I’m hoping The Athletic succeeds, not least because I have a lot of friends who are great journalists who are working there, and being allowed to do interesting things. And I understand how market competition works. But beyond wondering how trash-talking newspapers is a good strategic move in any way, I’m just disappointed that despite everything, someone who works in media can still fail to understanding the civic value and importance that newspapers have in a civil and responsible society. I mean, look around. The Athletic is giving journalists jobs: wonderful. But it’s not like great writers haven’t left newspapers before, you know? It was just disappointing and, it seems to me, counterproductive.

Paul Woods, Former executive with The Toronto Star & The Canadian Press

I think they are smartly trying to fill a void that is starting to exist in virtually every market. Local sports reporting is dying as the newspaper business struggles to adapt to punishing market conditions. I agree with them that there are tons of sports fans who still want high-quality written content about their favourite teams, leagues and sports. Question is will enough of those fans be willing to pay for it. As a charter subscriber to The Athletic (and I signed up before I was given the option via the Argonauts, for whom I’m a STH), I am a fan of what they are doing and really hope they succeed. They have some outstanding talent in people like Fitz-Gerald, LeBrun and Custance, to name just a few. I expect to subscribe as long as they are around.

So, what are your thoughts on the original post and of course the comments above?

Thanks to all those kind enough to talk to me, or off the record. If you are in the business and want to chat about this you can reach me on Twitter or via email.

Happy Day..

Jonah

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