In the wake of its recent legal defeat at the hands of a billionaire-backed former pro wrestler, beleaguered news company Gawker Media on Friday filed for bankruptcy protection in New York, listing the recent $130-million judgment against it as by far its biggest liability.
A Florida jury this spring awarded the sum to Terry Gene Bollea, better known as Hulk Hogan, who had sued Gawker for invasion of privacy after the company posted an excerpt of a sex tape featuring Bollea and a friend's wife.
Silicon Valley billionaire Peter Thiel recently confirmed that he bankrolled Bollea's suit against Gawker, which years ago had outed Thiel as gay.
Though Gawker filed for bankruptcy protection and has already lined up a potential buyer — digital media company Ziff Davis — it's not clear whether the company's owners, including founder Nick Denton, are really looking to sell.
Rather, they might be using bankruptcy protection to buy time until they can appeal the Florida judgment to a higher court.
The bankruptcy filing came soon after the judge overseeing Bollea's case against Gawker finalized the massive judgment during a Friday morning hearing and ruled that Bollea could start seeking payment.
That would have allowed Bollea and his team to start going after Gawker's bank accounts and putting liens on the company's assets — steps postponed by the bankruptcy filing, said Alan Friedman, a bankruptcy attorney at Costa Mesa firm Lobel Weiland Golden Friedman.
"Once you have that judgment, you're in a powerful position," he said. "The surest way to stop those collection actions is to file for bankruptcy. Once you're in bankruptcy, it prevents any creditor from pursuing collection."
Now that Gawker has filed for Chapter 11 protection, Friedman said he expects the company to ask the Bankruptcy Court to allow it to stay in bankruptcy — rather than immediately schedule an auction — while it waits for the appeals process to play out.
If Bollea, backed by Thiel's deep pockets, remains the victor at that point, Gawker could auction itself off, with nearly all of the proceeds going to Bollea.
The bankruptcy filing indicates that Gawker, which publishes its namesake site as well as other properties including Jezebel, Deadspin and Kotaku, has few creditors other than Bollea. After the $130 million owed, for now, to the former WWF star, Gawker's next biggest debt is a comparatively tiny $115,379 owed to law firm Morrison Cohen.
That means that if Gawker wins on appeal or winds up paying a significantly smaller judgment – experts have said those are likely outcomes – the company could then ask the court to essentially cancel the bankruptcy proceedings, Friedman said.
"Don't think for a minute that just because there's the bankruptcy filing that Gawker isn't going to try to resolve this through appellate court," he said.
It's also possible, though, that Gawker is planning on selling itself to Ziff Davis or another buyer, regardless of the appeal.
Jennifer Nassiri, a bankruptcy attorney in the Century City office of law firm Venable, said Gawker might be serious about a sale, given that Ziff Davis and Gawker have already reached a deal on an asset-purchase agreement, or stalking-horse bid.
That's an offer that sets the minimum price at a bankruptcy auction and that obligates Ziff Davis to buy Gawker's assets if no one else bids. Sources familiar with the stalking-horse bid said it is for $90 million to $100 million.
"You don't whip up a $100-million asset-purchase agreement overnight," Nassiri said. "This was obviously heavily negotiated before today."
Lowell Peterson, executive direct of the Writers Guild of America, East, which represents Gawker's 100 writers and editors, said he believes that the company plans to sell.
Attorneys for Gawker and Denton did not return requests for comment. Details of the company's plans and motivations could become clearer Sunday, when the company has said it will file additional documents with the Bankruptcy Court.
If Gawker is looking to sell, it could be a smart buy for Ziff Davis, an 89-year-old publishing company with a long history of catering to hobbyists and other niche audiences.
The company, founded in 1927, was behind titles such as PC Magazine and Popular Electronics. Starting in 1994, the company changed ownership several times, went public, turned private again and then filed for bankruptcy in 2008.
In 2010, Ziff Davis was acquired by private equity firm Great Hill Partners and former Time Inc. executive Vivek Shah for $27 million. They turned the company into a digital-only property, publishing sites such as IGN, PCMag and AskMen.
In 2012, the company was sold to J2 Global, a publicly-traded digital faxing and cloud computing firm based in Hollywood.
Walter Pritchard, an analyst who follows J2 for Citi, said the bankruptcy proceedings could give Ziff Davis a chance to buy solid assets at fire-sale prices.
Denton founded Gawker in New York in 2002, ushering in an era of unmitigated snark in certain corners of the Internet. In the ensuing years, the company expanded to include a number of other sites, some of which folded like Valleywag, which was notorious for its contentious coverage of Silicon Valley.
Other Gawker properties such as Deadspin, which focuses on sports, Gizmodo, which writes on gadgets, and Jezebel, a blog focused on women, have carved successful niches in the digital media market.
Reporter David Pierson contributed to this report
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