Esports and entertainment company Faze Clan recently went public through a $725 million SPAC merger with B. Riley Principal 150 Merger Corp. – a move that gave the company the flexibility to raise capital at an uncertain time for the economy and SPACs in general.
The buzzed-about company was once a gaming clan that gained attention through YouTube, posting clips and highlights from games in the “Call of Duty” video game franchise. Now, some 12 years later, that clan has grown into a multimillion-dollar digital entertainment company with millions of followers, brand partnerships and a board of directors that includes Snoop Dogg and Daniel Shribman, chief investment officer of B. Riley Financial.
The company’s stock is listed on the Nasdaq under the symbol “FAZE” and was trading at $12.53 per share as of August 3.
Faze Clan CEO Lee Trink told the Business Journal that using a SPAC, or special purpose acquisition company, which will go public on July 20, is important for the firm to be able to educate the public about what Faze Clan is all about and the future potential for brand growth, noting that the local Gen Z gaming industry is relatively new to the market.
The IPO comes at a time when the company has suffered and expects to continue to suffer operating losses that have been there since its inception, according to filings with the Securities and Exchange Commission. As of March 31, Faze had an accumulated deficit of $122 million, up $10 million from the previous quarter.
Tobias Seck, an analyst at Sports Business Journal and The Esports Observer, told the Los Angeles Business Journal that the company’s merger prospectus filing revealed it was running out of money due to a high burn rate.
“Based on this context, going public with a SPAC merger offered the most likely solution to successfully raising the necessary capital, as IPOs typically take longer to complete and come with an increased risk of missing price targets,” Seck wrote in an email .
Sek added that no esports organization has been able to raise private investment, adding as much capital as Faze, which is estimated at $110 million. He compared Faze’s private investment to that of gaming and lifestyle brand 100 Thieves, which raised one of the largest private equity investments of $60 million last year. “Furthermore, FaZe’s management and its consultants managed to manage the major drawbacks of the SPAC merger, including shareholder dilution and share buybacks,” Sec wrote.
In addition to 100 Thieves, Faze finds itself in company with other esports companies also based in Los Angeles, including TSM FTX, Team Liquid and Cloud9. The organizations have not taken their companies public, but have secured millions through funding rounds and sponsorships.
For example, TSM FTX entered into a 10-year naming rights deal worth $210 million shared with FTX Trading Limited and West Realm Shires Services Inc., the owners and operators of the FTX cryptocurrency exchange. Forbes estimated in May that TSM FTX was worth $540 million, a 32% increase from 2020.
Faze is the first eSports and gaming company listed on Nasdaq. However, according to Seck, its public listing is not necessarily indicative of similar companies following suit.
“The reasons for the potential increase in eSports and gaming companies going public must be sought in the general economic situation, where risk capital for high-risk eSports and gaming businesses that have not yet been discovered is more difficult than ever,” Sec wrote, adding that many esports organizations are unlikely to go public due to their ownership structures.
Organizations like 100 Thieves and Team Liquid, which is owned by aXiomatic Gaming, are run by majority shareholders who prioritize keeping the business private.
Faze said in SEC filings that its stock price will be affected by reach, viewership, content collaborations, deals and commercial partnerships. Faze Clan content creators who work on sites like Twitch and YouTube are a significant source of revenue for the company. For the three months ended March 31, one of Faze’s content creators accounted for roughly 27% of the company’s revenue.
According to the company, if it is unable to maintain or improve the brand, it may not be able to sell products or services and therefore consumer engagement may decrease, which may have a negative effect on its financial condition.
“Nevertheless, FaZe Clan’s long-term earnings will push the stock either way,” Sek wrote. “Right now, the signs are that FaZe is significantly overvalued, as the company has already had to announce that it does not expect to meet the 2023 and 2024 revenue forecasts on which its merger valuation was based.”
Faze has yet to file certain documents with the SEC that would provide a better picture of its financial condition, according to Seck.
CEO Trink wrote that the company plans to expand its platform verticals and reach new markets and categories.
“We are well positioned to expand our platform internationally as half of our fanbase network is ex-US. And there are a number of emerging categories that provide the opportunity to unlock greater monetization of our massive combined fanbase network of 500 million,” Trink wrote, adding that Faze plans to become an incubator and accelerator for the next generation of creators and creatives. to promote new intellectual property.
Completing the merger is a big win for Faze, according to Seck, who noted that its planned expansion strategy will be supported over the next year or two by the $100 million PIPE deal included in the merger.
“On the other hand, anything short of exceeding projected earnings or securing significant additional investment through the issuance of new shares could be considered a failure,” added Sec.