(Bloomberg) -- The frat house of the video game industry is flinging open its doors and letting the public in.
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FaZe Clan, a bombastic organization of gaming celebrities and esports pros that helped pioneered the influencer marketing industry, began trading on the Nasdaq Wednesday after merging with a special purpose acquisition company. It became the first publicly traded Gen-Z influencer company and one of only a handful of esports companies on the market. But FaZe’s business is built on hype and Wall Street wasn’t buying it.When FaZe agreed to merge with B. Riley Principal 150 Merger Corp. last October, it was given a valuation of close to $1 billion. But much has changed since then, including a broader stock market downturn, investors’ lost interest in SPACs and FaZe’s own revised financial statements. The stock of the new FaZe Holdings Inc. fell 24% in New York to $9.88. Based on 72.5 million shares outstanding, including warrants and other holdings, according to FaZe, that gives the company a fully diluted value of about $716 million.
The Los Angeles-based organization was formed in 2010 by a group of teens who met playing Xbox online. They began posting clips of themselves performing trick shots in Call of Duty on YouTube, which attracted large audiences of young, primarily male gamers.
FaZe Clan soon became associated with the cool, older teen who could earn thousands of dollars a day playing games such as Fortnite on streaming site Twitch in lieu of attending college or who might flash a diamond studded watch in a video about pranking his friends. The group is defined by “stunt” culture—from its founders pulling off eyebrow-raising sniper shots in Call of Duty, to the YouTube video by member Brian “FaZe Rug” Awadis called “I Filled my Swimming Pool with GIANT SNAKES!! **scary**” which has been viewed more than 19 million times.
FaZe Clan has parlayed its popularity into lucrative brand tie-ins with companies like General Mills Inc. and McDonald’s Corp., and lines up content deals and collaborations like one with Japanese artist Takashi Murakami that clocked more than $1 million in sales on the first day. FaZe Clan became the first esports organization to land on the cover of Sports Illustrated and has its own Batman comic book. It also earns revenue through branded streetwear, ads on YouTube and Twitch videos, and wins some money through esports competitions.
FaZe’s name is its most valuable asset. Members attach “Faze” to their gamer nicknames and are “immensely more famous the day after,” Chief Executive Officer Lee Trink said in an interview with Wired in 2020. However, FaZe’s reliance on public perception and sponsorships, which make up half its revenue, clashes with its ethos as an edgy, often controversial organization.
“It’s very experimental,” says Joost van Dreunen, a New York University Stern School of Business lecturer who wrote “One Up: Creativity, Competition, and the Global Business of Video Games.” “They’re a pioneer of digital lifestyle branding and post-pandemic entertainment. Basically, a bunch of cool people trying to sell merch by acting cool, and making people want to be cool like them.”
FaZe Clan now counts more than 500 million global followers on social media. Its 93 “influential personalities” include a mix of talent who go beyond the world of gaming, such as National Basketball Association star Anthony Davis, Lebron "FaZe Bronny" James Jr. and Snoop Dogg aka "FaZe Snoop,” who wore a gold chain that read “FaZe Clan” at the 2022 Super Bowl half-time show. Until last year, seven FaZe Clan members lived and filmed videos inside a $30 million Los Angeles mansion.
B. Riley’s Chief Investment Officer, Daniel Shribman, saw in FaZe “a brand that speaks to today’s youth culture like Nike spoke to yesterday’s.” But FaZe Clan is coming to market amid an economic downturn that could put pressure on budgets of sponsors, whose ranks include McDonald’s, Nissan Motor Co. and Doordash Inc. The stock market has been in a downward spiral for much of the year, and FaZe’s blank-check merger closes just weeks after a wave of similar SPAC deals were called off.
When the plan was announced last October, the group was projecting $50 million in revenue in 2021 and a loss before interest, tax, depreciation and amortization of $19 million. But in April, FaZe reported an Ebitda loss in 2021 that was greater than its forecast by $9.7 million, widening to a loss of $28.7 million. The company also said it expects results for 2022 and 2023 to “differ materially” from its last forecast.
FaZe is steeped in highly volatile industries: esports, branded sponsorships and, recently web3, a new idea for the next iteration of the web that incorporates concepts such as blockchain and cryptocurrencies. The organization relys on the hype factor to draw in revenue.
“Gen Z is the tip of the spear driving culture,” said Trink. “We have an understanding of the changes Gen Z wants to see in commerce and we have the position to capitalize.” Trink, a former music industry executive credited with managing Kid Rock’s career, has compared FaZe to MTV.
FaZe is considered a world-class influencer organization, with all of the associated controversy. FaZe and its stable of rowdy teen boys — there’s only one woman among the current roster of influencers — have been embroiled in controversies surrounding a racist slur, a sexist joke about women esports pros, and a “pump and dump” cryptocurrency scam called “SaveTheKids.” And that was all in the last year. In 2020, FaZe co-owner Ricky Banks advertised a site for gambling with video game cosmetics without disclosing that he owned it, and in 2021, was generously compensated to fly to Mexico to promote an offshore crypto gambling website.
Two former FaZe superstars — Turner “Tfue” Tenney and Dennis “Cloak” Lepore, who have a combined 13 million YouTube subscribers — have had public blow-ups around their contracts.
The company shuns firm job titles and old-school professionalism, which, combined with FaZe’s big personalities, has contributed to internal volatility, according to people familiar with the organization. FaZe now has an interim chief financial officer, after his predecessor left after just one year. Several of FaZe’s Gen Z influencers, including Banks, have played a large part in the company’s business dealings. One former employee says kids with no experience in business or branding are calling the shots, and described the organization as a “shit-show.” “We've been preparing for over a year to become a public company,” Lee said. “In the time that we've announced our merger, we've put together a stellar management team and a world class board of directors to oversee the company. FaZe Clan has a professional management team and a public company board to run the business, but as a brand at the forefront of youth culture, it's critical to include the perspectives of Gen Z and our people who have an innate knowledge of the internet community and the brand."
Shribman believes FaZe’s brand will weather the scandals. “It’s edgy, deep-in-youth-culture, deep-in-gaming-culture. That’s what makes it what it is. If there were no controversies, that would be pretty boring.”
FaZe may have pioneered a way to monetize gaming’s swagger, but holding its lead could be a challenge. It already faces competition from other esports teams that have pivoted into lifestyle brands such as 100 Thieves. And esports itself has proven difficult to make money in, with fickle sponsorships and tournament winnings barely buoying even the most well-respected organizations.
FaZe’s next steps are in web3. The company plans to spend some of its listing funds on acquisitions, Trink said. It’s also pursuing partnerships with several companies involved in the metaverse, an immersive version of the internet where users will interact through digital avatars. He is “unquestionably” pushing forward into web3 despite crypto’s $2 trillion free fall.
“Gen Z is such an entrepreneurial generation,” Trink said. “And there have never been more tools to be entrepreneurial.”
(Updates with closing share trading. A previous version of this story removed an incorrect reference to the company’s market cap.)
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