Gawker Media is on the verge of being sold and the deadline for bidding has passed, but the question remains: Is the new owner responsible for the $140 million that Gawker owes Hulk Hogan for his successful invasion of privacy lawsuit against the company? And will the former wrestler get anywhere near that amount?
The short answer is no, anyone who purchases Gawker will get the digital media company free and clear of its existing debt, including the Hogan legal judgment if it’s upheld in court.
That money for the purchase of Gawker’s assets — likely to be in the neighborhood of $90 million, based on the stalking-horse bid submitted by Ziff Davis — would go to pay all of the company’s creditors.
Hogan would be regarded as an unsecured creditor — which would put him well behind those who supplied lines of credit and secured debt to Gawker Media. “In the Gawker case, there are some secured creditors and there lots of unsecured creditors,” Jerrold Bregman, a partner at Brutzkus Gubner who specializes in Chapter 11 and litigation matters, told TheWrap.
The net proceeds of the sale, after the cost of the sale itself, will be distributed first to the secured creditors. And then, whatever is leftover will be shared pro rata by all the unsecured creditors, including Hogan.
First, though, Hogan would have to win the appeal that Gawker has filed — where the size of the judgment could well be reduced even if the verdict is upheld. But then the wrestler, whose real name is Terry Bollea, would join what is likely a long list of Gawker’s creditors “entitled to his prorated share of the net proceed from the sale,” Bregman said in June.
“I would expect, that when all is said and done, ultimately there would be a settlement with a substantial reduction in the amount of the claim,” Bregman previously told TheWrap, but there are several variables.
Gawker founder Nick Denton has maintained that he’s confident at the company’s chance to win its appeal.
“This story will conclude with Gawker Media’s popular brands sheltered under new ownership and the importance of a free and critical press reaffirmed by the courts,” Denton told Recode last month.
The deadline for bidding does not mean we know who will control Gawker going forward right away. Companies are simply asked to submit a qualifying offer if they want to continue with the process. Ziff Davis made a stalking-horse offer of $90 million, so any potential bidders would have to top that (plus a breakup fee) to qualify for the actual auction that kicks off on Tuesday.
In March, a jury awarded Hogan a total of $140 million after Gawker published portions of a sex tape featuring the wrestler and the then-wife of his close friend, Todd “Bubba the Love Sponge” Clem. After awarding Hogan $115 million in damages, the jury tacked on another $25 million in punitive damages.
Gawker filed for bankruptcy following the judgment, which has also impacted the personal finances of Denton, who recently filed for Chapter 11 bankruptcy. He estimates that his liabilities are in the range of just over $100 million to $500 million. Denton’s biggest creditor by far is Hogan.
Entering bankruptcy was an essential part of making sure that Gawker remains a viable media company, with or without Denton.
“The whole point of Chapter 11 is to keep viable business assets going,” Bregman said.