Sex tape award in Hulk Hogan case hinged on website valuation

BVWireIssue #166-1
July 13, 2016

During the trial in which Terry Bollea (Hulk Hogan) sued the website Gawker over the now infamous sex tape, a valuation expert testified about the amount of damages. But it was not a question of damages over the right of publicity but rather one of unjust enrichment—that is, the gain in value of the Gawker website due to its misuse of Hogan’s assets (his brand and other intellectual property). Methodology: Content-driven websites such as Gawker generate revenue primarily from advertising. These websites are often valued based on a multiple of monthly unique users, according to Jeff Anderson (CONSOR), who was the testifying expert in the Hogan case. “We calculated the benefit to the website by analyzing the change in value from before the video was posted (pre-damages period) to after the video was removed (post-damages period).” The website’s value was determined using a monthly unique user multiple, which was developed based on transactions for comparable websites, Anderson explained during a recent BVR webinar. The analysis revealed an average multiple of $19.34x (which they considered an upper bound). Using this multiple applied to the website’s traffic before and after the video, the Gawker website increased in value by $54.1 million. Based on traffic the sex tape specifically triggered, it was then determined that 28.5% of the overall traffic was attributable to the video. That percentage was applied to the $54 million overall increase in value to get $15.4 million—the increase in website value attributed to the sex tape. Daubert challenge: “The opposition kept trying to get me to admit that no one had ever valued a website based on monthly unique users,” says Anderson. That’s not exactly true, Anderson points out, but there was nothing in the literature nor in court precedent about it. Nevertheless, he succeeded in fending off the challenge by arguing that the core value driver of a content-driven website such as Gawker is the traffic from unique monthly users. Lesson learned: “Stick to your guns,” he advises. In the end, the jury felt that all of the $54 million increase in website value was due to the sex tape, so it did not apportion any of it in coming up with the award. The jury’s overall award to Hogan was $140 million (which included other elements of damages). More details: An article in the August issue of Business Valuation Update gives more details on the winning valuation methodology used in the case.
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