Electronic sports and entertainment company Faze Clan recently went through a $725 million SPAC merger with B. Riley Principal 150 Merger Corp. went public — a move that gave the company the flexibility to raise capital at an uncertain time for the economy and SPACs at large.
The bustling company was once a gaming clan that garnered attention through YouTube, releasing clips and highlight reels from games in the Call of Duty video game franchise. Now, some 12 years later, this clan has grown into a multi-million 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. belong.
The company’s shares are listed on the Nasdaq exchange under the ticker symbol “FAZE” and were trading at $12.53 per share on August 3.
Faze Clan CEO Lee Trink told Business Journal that it is important for the company to go public on July 20 with a SPAC, or special purpose vehicle, to educate the public about what the Faze is about -Clan is and what future growth potential does Faze Clan have brand and noted that the native Gen Z gaming industry is fairly new to the market.
The IPO comes at a time when, according to filings with the Securities and Exchange Commission, the company has suffered and expects to continue to suffer operating losses since incorporation. On 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 cash due to a high burn rate.
“Against this backdrop, going public with a SPAC merger offered the most likely solution to successfully raise the required capital, as an IPO typically takes longer and involves an increased risk of missing price targets,” Seck wrote in an E- Mail.
Seck added that no esports organization has been able to raise a private investment that adds as much capital as Faze — around $110 million. He compared Faze’s private investment to that of gaming organization and lifestyle brand 100 Thieves, which raised one of the largest private investments last year at $60 million. “Furthermore, FaZe leadership and its advisors have been able to manage the major downsides of a SPAC merger, including shareholder dilution and stock redemptions,” Seck wrote.
In addition to 100 Thieves, Faze works with other esports companies also based in Los Angeles, including TSM FTX, Team Liquid, and Cloud9. The organizations did not list their companies on the stock market, but raised millions through financing rounds and sponsorships.
For example, TSM FTX has inked a $210 million 10-year naming rights deal split with FTX Trading Limited and West Realm Shires Services Inc., the owners and operators of cryptocurrency exchange FTX. Forbes in May estimated that the TSM FTX is worth $540 million, up 32% from 2020.
Faze is the first esports and gaming company to be listed on the Nasdaq. However, according to Seck, the public listing isn’t necessarily an indication that similar companies will follow suit.
“The reasons for a potential increase in esports and gaming companies going public should be the general economic climate where venture capital for high-risk but not yet profitable esports and gaming companies is harder than ever to come by . ‘ Seck wrote, adding that many esports organizations are unlikely to go public due to their ownership structures.
Organizations like 100 Thieves and Team Liquid, owned by aXiomatic Gaming, are run by majority shareholders who prioritize keeping the business privately owned.
Faze said in SEC filings that its stock price is impacted by reach, viewership, content collaborations, deals and commercial partnerships. Faze Clan content creators, operating 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 approximately 27% of the company’s revenue.
According to the company, if it can’t maintain or improve the brand, it may not be able to sell products or services and, as a result, its customer engagement could decline, which could negatively impact its financial condition.
“However, FaZe Clan’s long-term earnings will send the stock both ways,” Seck wrote. “As of now, all signs are pointing to a significant overvaluation of FaZe, as the company previously announced that it does not expect to meet the 2023 and 2024 revenue projections upon which its merger valuation was based.”
According to Seck, Faze has yet to file certain documents with the SEC that will give a better sense of its financial health.
CEO Trink wrote that the company plans to expand the verticals of its platforms and reach new markets and categories as well.
“We are well positioned to expand our platform internationally with half of our fan base network outside of the US. And there are a number of emerging categories that offer the opportunity to unlock more monetization of our massive combined fanbase network of 500 million,” Trink wrote. He adds that Faze plans to become an incubator and accelerator for the next generation of creators and creators to nurture new intellectual property.
Completion of the merger is a major win for Faze, according to Seck, who noted that its planned expansion strategy over the next year or two is supported by the $100 million PIPE deal included in the merger .
“On the other hand, anything other than exceeding projected earnings or securing significant additional investment by issuing new shares could be considered a failure,” Seck added.