FaZe Clan Is Going Public—At a Crucial Time for Esports
Shareholders voted to move forward with the SPAC merger on Friday.
On Friday, the shareholders voted, and FaZe Clan will finally go public. Following a period of uncertainty amid reports of lower-than-projected revenues and higher-than-planned expenses, the wildly-popular esports team-turned-lifestyle brand will begin trading on NASDAQ on Wednesday.
It’s a hallmark moment for esports, one that figures to severely impact the industry either positively or negatively—depending on the reception of the business by retail and institutional investors, and how the stock behaves over the next few months.
Bets made five to seven years ago by venture capitalists and family offices are being called. Potential new private investors are strictly scrutinizing balance sheets and profit-and-loss statements. And layoffs continue to cascade around the industry, hitting even the most valuable organizations. Several high-profile industry sources have speculated to me this week that even FaZe could see staff cuts once it’s secure in its public offering.
In the wake of the confirmation of the SPAC merger, shares in BRPM—which will rebrand to FAZE on NASDAQ on Wednesday—closed at $10.14 on Friday afternoon and soared to $10.42 after hours. That’s 42 cents higher than the SPAC’s initial list price and signals excitement around the stock from existing shareholders and retail investors.
But next week will be telling. As investors scrutinize the company more thoroughly—its revenue, projected financial statements and business structure—how will that price change?
FaZe is still ultimately a company that lost $28.7 million in 2021, and its pathway to profitability seems long, tenuous and full of pitfalls, particularly if it should fall out of public favor or lose some of its high-profile influencers. FaZe’s financial success relies heavily on its ability to procure valuable sponsorships and partnerships based on massive engagement numbers, sourced from those very influencers.
For now, it’s the biggest fish in the pond—but if esports has shown us anything over the past seven years, it’s that popularity ebbs and flows. Remaining on top forever isn’t guaranteed.
To be clear, FaZe is in no imminent danger. However, with it now public, management will have to be extra-smart on how it spends. There’s no more private investment well to tap (granted, many of those investors are taking a more critical eye at esports now than before). The SPAC deal awards FaZe an influx of cash—although, with the minimum requirement previously waived, it’s unclear exactly how much.
FaZe will need to execute on its communicated strategy of entering the merger-and-acquisition market aggressively and finding other businesses that give it more than influencer contracts. Namely, it needs more intellectual property, be it game or software developers, peripheral or equipment manufacturers, or something more measurable.
To that end, the current economic market may play to FaZe’s benefit. It’s harder to fundraise now, regardless of what stage a business is in. As mid-sized gaming and tech companies progress through the economic downturn, some may find themselves seeking acquisition. FaZe, now with presumably a few hundred million dollars cash on hand and potentially valuable stock as a bargaining chip, could be the ultimate acquirer.
We’ve seen several esports teams start making these moves. In October, 100 Thieves acquired Higround, a keyboard manufacturer, lending the brand its relationships with highly-influential entertainment franchises such as “Attack on Titan.” 100 Thieves also announced it’s developing a first-person shooter game and bringing on veteran game executives to lead that project. Yet, like many other esports companies, 100 Thieves laid off at least 17 employees this week amid a shift in business priorities from content to other areas.
Team Liquid is going through similar growing pains, significantly investing in its white label media production arm that holds contracts with Riot Games themselves. Liquid is also making staffing changes to shift its focus toward media and other areas, sources familiar with the matter told The Jacob Wolf Report. The brand has already let go of a few employees and will do more, in smaller batches, in the next few months.
Countless other organizations are redefining what it means to be a “team.” TSM, arguably the esports team that has diversified its business the most, is investing more and more in software (it currently owns the Blitz App and Dyno Discord bot). In March, Misfits entered into a joint venture with Tezos to launch a blockchain-gaming-focused incubator called Blockborn. Competing in esports at scale doesn’t make money, so teams are finding other means.
FaZe, despite its wild popularity, isn’t diversified much at all. Its influencer business is the core of its revenue and popularity, with its esports teams playing second fiddle. But neither are reliable—it costs lots of money to keep influencers happy, and running top teams in games like “Counter-Strike: Global Offensive” comes with a hefty price tag, too.
So in a tough market: What does FaZe do next? We’ll soon find out.
Elsewhere in Gaming and Esports:
📝”‘Our entire industry is dying’: In esports media, layoff season is in full swing” (Alexander Lee / Digiday)
It’s been a tough year for esports media. Layoff turnover isn’t new, as venture capitalists and team owners take what seems like an annual swing at building a media empire—only to grow impatient with the losses and let go of talented, hungry journalists in droves. In this piece, Lee interviews some of esports’ most influential journalists to talk about the state of the industry’s media business in the wake of recent layoffs at Inven and cuts at Upcomer.
📷 “By signing stars, YouTube aims to replicate Twitch’s secret weapon: culture” (Nathan Grayson / The Washington Post)
We mentioned in a prior post streamer Lily “LilyPichu” Ki’s jump from Twitch to YouTube. A couple days later, Ali “Myth” Kabbani made the same move. Grayson, who covers the streamer beat incredibly thoroughly, chronicles YouTube’s big push into live gaming programming and its recruitment of some of Twitch’s biggest stars. At the center of it all: YouTube’s not just trying to win by spending, but by building a culture that attracts influencers, while Twitch seemingly plays more hands-off.
💼 “Sony officially closes $3.6 billion acquisition of Bungie” (Jay Peters / The Verge)
Sony is officially the owner of Bungie, after clearing regulatory approval. The “Destiny” developer will now begin integrating into one of the two most successful game publishers, 15 years after it parted ways with the other, Microsoft, leaving its precious “Halo” franchise behind. Bungie also previously terminated a publishing partnership with Activision Blizzard and retained the “Destiny” franchise in its exit. It’s a big deal for gaming—and came with the company’s general counsel Don McGowan firing off a well-timed joke on Twitter.
Unlike Elon Musk, when I do a multibillion dollar deal, IT CLOSES.
— Trans kids are not a threat. Leave them alone! (@legalminimum)
Jul 15, 2022