Gawker is filing for bankruptcy protection and will sell itself rather than pay $140 million to Terry Bollea, who wrestled as Hulk Hogan.
The company says it plans to sell itself to publishing company Ziff Davis.
Gawker filed for Chapter 11 bankruptcy protection about three months after Bollea won a lawsuit against the online gossip and news publisher. The sale will be conducted through bankruptcy court so other bidders could emerge.
The New York company said in the filing that it has as much as $500 million in debt and up to $100 million in assets.
Bollea sued Gawker after it posted a video of him having sex with the wife of Tampa shock jock Bubba the Love Sponge Clem, who was his friend at the time. Bollea was awarded $115 million in compensatory damages, plus $25.1 million in punitive damages.
It was later revealed that billionaire tech investor Peter Thiel had been secretly funding Bollea's lawsuit.
Thiel, who cofounded PayPal and was an early investor in Facebook, has been a frequent target of Gawker writers, who have written unflattering pieces about Thiel's political beliefs and utopian goals.
One 2007 post outed Thiel as gay. Another Gawker site, Valleywag, ran a number of stories skewering Facebook, which provided a big chunk of Thiel's estimated $2.7 billion fortune.
A spokesman for Thiel said he had no comment on Friday.
In the filing, Bollea was listed as Gawker's biggest creditor.
Gawker founder Nick Denton said in a statement that Ziff Davis' e-commerce, licensing and video assets would be a good fit with Gawker's websites, which include tech site Gizmodo, sports site Deadspin, video game site Kotaku, celebrity and women-focused site Jezebel, news and gossip site Gawker, car site Jalopnik and self-help site Lifehacker.
In addition, a Pinellas County judge on Friday granted Gawker's motion to stay the $140.1 million judgment awarded to Bollea pending an appeals court review.
But there are conditions: Gawker stock shares from former editor A.J. Daulerio and Denton will be used as security.
The shares include nearly 6,000 from Daulerio and about 45 million from Denton, whose shares total about 30 percent of Gawker Media's stock.
"He is willing to pledge all of his shares to the court as security for any judgment following appeal," Gawker defense attorney Michael Berry said during Friday's hearing.
Attorneys representing Bollea drafted an order that would outline the conditions of Gawker's pledge. A copy of the order was not available Friday.
Berry said in court that Daulerio and Denton could not afford to pay the judgment, adding that it would mean "certain financial ruin" for them.
Daulerio does not own a home and has less money in his bank accounts than he owes in student loans, Berry said. Denton owns a condo, which he is seeking to rent to move into a less expensive home.
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A Gawker spokesman said the proposed order gives Bollea and Thiel control of the media company's bank accounts and daily operations.