FaZe Clan is flaming out on Nasdaq as Chairman resigns

Esports team and lifestyle company, FaZe Clan went public in July 2022 through a SPAC merger at a $725 million valuation. While it’s not the only public esports team, the company is the highest profile — and highest valuation — of the bunch.

However, public scrutiny has not been kind to FaZe Clan. The stock price has plummeted by approximately 97% since it virtually guaranteed its listing via a SPAC (special purpose acquisition company) merger. While esports companies have struggled, none have fallen as far as FaZe.

For the first half of 2023, FaZe reported earning $24.2 million for a net loss of $28.4 million. Compared to the same period in 2022, the company’s earnings fell 30% from $34.6 million and its net losses increased 50% from $18.9 million. While FaZe did decrease its cost of revenues by $3.2 million, its general and administrative costs grew by $8.8 million.

The diminishing revenue and growing costs are hard for investors to overlook, especially with the current economic headwinds. With a current market cap of about $20 million and $21.2 million in cash on hand, the market is essentially valuing FaZe at $0.

The situation became more dire for the former esports darling in recent months. On March 24, 2023, the company warned it was at risk of being delisted from the Nasdaq(FAZE) because its share price fell below the $1 minimum bid for 30 days in a row. To avoid this, FaZe’s stock must close above this minimum for 10 business days in a row before September 19.

“We do not expect to be delisted and have taken steps to remedy the current deficiency as needed,” a spokesperson from FaZe told GamesBeat.

But with only 20 days left, it seems unlikely that FaZe will be able to meet these requirements considering the share price is hovering around $0.25. While The Esports Advocate reported that FaZe was considering a reverse stock split to achieve compliance, this has not yet materialized.

It begs the question, what went wrong?

Tarnishing the FaZe Brand

FaZe Clan is one of the most well-known esports brands globally. The organization traces its roots to 2010’s Call of Duty trick shot montages and boisterous personalities.

This fusion of high-level gameplay with early creator culture gave the brand broader mainstream appeal than its competitors. Eventually, the brand signed top athletes and music icons to widen its audience — with top names taking an ownership stake in the company via stock-based compensation.

As the brand took off, FaZe’s story of humble beginnings to high-profile (and monetary) success helped it build a massive audience. Fans identified with this rags-to-riches origin story and cheered on its relatable crew of creators. FaZe ultimately sold the dream that they were just like their fans, but gaming catapulted them into a lavish lifestyle.

Success — both competitively and monetarily — is the foundation of FaZe’s brand. And fundamentally, this brand is the company’s greatest asset. Without it, FaZe can’t hold the same appeal to investors.

When FaZe had to begin reporting its financial earnings as a public company, it shattered this dream of gaming leading to Bugattis and Benjamins. For a brand that wants to be synonymous with success and status, nothing is more damaging than admitting you are losing millions monthly.

Moreover, CEO Lee Trink acknowledged the company needed to increase its financial discipline in a February 2023 letter to shareholders, while announcing layoffs (reportedly 20% of staff).

Bad timing

While going public has not gone well for FaZe, timing also played a key role in its stock price dilemma.

There are many reasons why esports teams pursued public listing. However, they all operated on the underlying assumption that access to more liquidity (i.e., cash) would allow esports teams to unlock a path to profitability.

Unfortunately, esports and lifestyle organizations faced major headwinds. The current economic environment has changed drastically since FaZe Clan first announced it would go public in October 2021. Due to the crypto winter, inflation, rate hikes and rising geopolitical tensions, markets have cooled substantially.

In particular, the tides have turned against IPOs and de-SPACed companies. 2021 was a peak for SPACs with 613 closed deals averaging $265 million in gross public proceeds. In contrast, only 86 deals closed in 2022 and the average deal shrunk by 40%.

While Instacart’s upcoming IPO could create more confidence for new listings, it sets the bar much higher than where it was in 2021. FaZe — and nearly all esports teams — are still searching for profitability. Meanwhile, Instacart has been profitable for five straight quarters.

By going public in July 2022, FaZe Clan entered a market where investors wanted sure bets, not speculative assets. Even if the increased access to liquidity could lead to profitability, FaZe simply did not have the runway to make it happen.

Sinking ship

The signs are beginning to pile up that executives, not just investors, are losing confidence in FaZe Clan. On August 30, FaZe announced that Daniel Shribman resigned as Chairperson of the company’s board of directors. Shribman is still listed as the Chief investment officer of B. Riley Financial, which sponsored the SPAC that merged with FaZe Clan.

However, Shribman is not the only executive to depart the company in recent months. Since May 2022 (when the company was preparing to go public), at least 19 other high-profile executives and board members parted ways with FaZe Clan.

These executive turnovers — especially in crucial financial and legal positions — are coming at a time when strong leadership is essential. FaZe recently appointed Christoph Pachler as CFO in addition to his role as COO. Similarly, Erik Anderson was appointed as President of FaZe after previously serving as its Head of Esports. This continuity in leadership is a plus during a crucial time in FaZe’s history.

Open warfare and lost legacy

Perhaps more telling is the open disagreement between company leadership and original FaZe Clan members. When FaZe announced the signing of Stranger Things actress and Twitch Streamer Grace “bluefille” Van Dein, former co-owner Nordan “FaZe Rain” Shat blasted the move as inauthentic to the brand. The drama quickly escalated and got ugly. Founder FaZe Banks and its first ever CEO FaZe Temperrr fired back at FaZe’s statement in support of signing Van Dein.

While the way it played out was crude at best, the tension between FaZe executives and founding members speaks to different incentives alongside a cultural clash. Ultimately, the move to go public gave part owners, including those with stock-based compensation, a way to turn those shares into cash more easily.

However, shareholders were not able to sell as soon as FaZe was listed in July 2022. In line with industry standards, their stock in FaZe was locked up for six months. In that time, FaZe’s share price fell by over 80%. Talent watched their fortunes and the brand they built fall apart.

FaZe out?

Unfortunately, FaZe is in a bind. Amid the tensions, FaZe’s brand value, leadership and legacy are on the line. While the company could request an extension from NASDAQ to regain compliance, its unclear how it would go about raising the stock price by over three-times its current share price with that additional time.

Depending on what FaZe’s outstanding liabilities are, it might be possible to sell the company. The brand could be valuable to another company looking to reach its massive fanbase.

Alternatively, a reverse stock split could be possible. However, without a plan to achieve profitability, it just delays the inevitable.

Ultimately, FaZe’s public listing failure speaks to the bitter cold of the esports winter. No other esports team had FaZe’s resources (or PR blitz that included a Sports Illustrated cover and a jewel-encrusted chain Snoop Dogg wore during his Super Bowl LVI halftime performance).

Many believe the company set the gold standard for brand value in esports. Now, its once $1 billion valuation has crunched about 98% to around $20 million. If every other esports team (without diversified operations) is worth less than FaZe Clan, the esports industry is in dire straights.