FaZe Clan’s billion-dollar journey has taken an unexpected — but perhaps inevitable — turn. Burned by controversy and facing a collapsing share price, the embattled North American esports team has been acquired by GameSquare, the Texas-based esports company backed by Dallas Cowboys owner Jerry Jones.
As of today, October 20, the acquisition has been unanimously approved by both companies’ boards. It’s expected to close in Q4 2023, pending shareholder approval. The all-stock transaction merges FaZe and GameSquare into one company, with FaZe stock accounting for approximately 45 percent of the firm’s ownership. If the deal were to close at the companies’ current combined market capitalization of about $35.7 million, it would value FaZe Clan at roughly $16 million.
GameSquare — also a publicly traded firm — is an esports holding company, with ample business units designed to help capture brands’ attention and marketing budgets, such as Stream Hatchet and Ninja Labs. By acquiring FaZe, GameSquare is looking to bolster its connections with the competitive gaming audience by taking ownership of one of esports’ oldest and most recognizable pieces of intellectual property.
“The reality is, we’re a micro-cap, and we think we can get a rerating, and this thing could move quickly,” said GameSquare CEO (and former FaZe Clan CFO) Justin Kenna. “So, by the time the deal closes, that could be materially different. It’s all-stock; it’s relative.”
An opportunity to strike
The deal marks the end of a hellacious chapter for Faze Clan. It started when the esports organization went public in July 2022 after being valued at $400 million last May. From there, chaos ensued. Over the summer, the organization found itself mired in numerous accusations of sexism and homophobia; its share price has plummeted to $0.18, following an August 2022 high of $24.69; the company laid off roughly 40 percent of its staff in May; and former CEO Lee Trink parted ways with FaZe on September 13, among other negative events.
Despite all these issues, FaZe Clan still holds a considerable amount of value in esports. For better or worse, FaZe’s massive following — a total of 260 million across social channels, according to the data platform GEEIQ — is arguably one of the most passionate in the space. With this in mind, it’s not hard to think why a savvy business might view Faze’s depressed share price as an irresistible opportunity, regardless of the inherent risks.
“FaZe Clan is, to me, the only truly globally recognized brand in gaming,” Kenna said. “And so it brings a huge audience, and I think it brings a huge amount of opportunity.”
The proof’s in the pudding — GameSquare wasn’t the only esports company to have taken a look at FaZe in 2023. Earlier this year, Sports Business Journal reported that both GameSquare and the Canadian gaming company Enthusiast Gaming were circling FaZe with an eye towards a potential acquisition. Even prior to that reporting, however, executives at Enthusiast had soured on the potential deal, viewing FaZe as too esports-focused to fit into Enthusiast’s broader casual gaming portfolio.
“If we had billions of dollars, we wouldn’t buy FaZe Clan, because that’s not the direction we want to go,” said an Enthusiast Gaming executive, speaking to Digiday on condition of anonymity due to the sensitivity of the ongoing negotiations. “I think that’s why esports is falling apart — it’s so niche, and we’re not niche.”
The executive also cited FaZe’s ongoing struggles with toxicity and brand safety as aspects of the org that would not mesh well with Enthusiast’s diversity-and-equity-focused brand strategy.
Toxicity. Brand safety. These would be big turn offs for any buyer that harbored ambitions beyond competitive gaming — not just Enthusiast. After all, it’s hard to get companies to sponsor a brand that could have a destabilizing effect on its own. But FaZe’s past brushes with controversy didn’t sour GameSquare on the deal.
Back to the roots
As part of the acquisition, FaZe Clan’s creator–founders — some of whom have vocally criticized the recent trajectory of the org — are returning to leadership positions at the company. Richard “FaZe Banks” Bengston is becoming CEO, Thomas “FaZe Temperrr” Oliveira is assuming the role of president and Yousef “FaZe Apex” Abdelfattah is taking on the role of FaZe COO.
Kenna, who once served as CFO of FaZe between 2018 and 2020, has also brought other former FaZe execs into the fold, like Duane Jackson, FaZe’s former director of athlete and celebrity relations, and Jaci Hays, a former FaZe COO. In addition to this seasoned leadership team, GameSquare enjoys the financial backing of Jerry Jones and the Cowboys, which means it’s less reliant on the ever-changing winds of venture capital than some of its rivals in the esports arena.
Sentimental as this reunion sounds, there’s also a business rationale to it. Kenna believes FaZe’s creator–founders are the right people to steer the brand back into the light — and that they wouldn’t be able to do so if FaZe was still publicly traded.
“I think the ability here, to be able to have guys like Banks and Apex and Tommy to hold these positions and to drive the brand forward, is a huge plus — and I guess what I mean by that is that FaZe Clan is not a forward-facing public company anymore,” Kenna continued. “This is a huge opportunity for FaZe Clan to get back to being the brand that it was.”
A brighter future?
Positive signs notwithstanding, it remains yet to be determined whether GameSquare — or any other esports company — is truly equipped to rescue FaZe Clan from its $400-million-dollar death spiral.
“There is a lot of value in FaZe as a name and a brand, and I think it’s just a matter of who is going to run the company to make the right decisions and steer it forward,” said a former FaZe executive with knowledge of the deal, who agreed to speak to Digiday anonymously regarding the ongoing negotiations.
Even before the recent cutbacks in esports spending, Faze Clan’s edgy brand had already made some marketers hesitant to collaborate, let alone in the current climate. Given these persistent challenges, it will be critical for GameSquare to address the issue of attracting new sponsors if it wants its acquisition of FaZe to pay off.
Needless to say, this deal is a lifeline for one of esports’ most prominent brands. Now that it’s sealed, it’s GameSquare’s responsibility to steer the FaZe Clan ship back on course. It’s a formidable challenge, no doubt, but there are arguably few esports outfits better equipped to make it happen.
In addition to its brain trust of former FaZe executives, GameSquare is a more diversified business than FaZe Clan, without the history of controversy or edgy identity that may have distracted investors from FaZe’s industry successes in recent years. Former employees told Digiday that they believed the company was executing more effectively on FaZe’s original vision for a publicly traded esports company.
The esports industry, on the whole, still heavily depends on diminishing brand partnership earnings, and Faze Clan is a prime example of this challenge.
“Going back to the holding company model, what are those elements that are going to take companies that are pretty much all in the red, currently, and flip that around to profitability? There’s just been such a high dependence on brand partnerships in the equation,” said Ned Sherman, an M&A expert for Skybound Entertainment and GOAL Ventures. “Some of the focus may be on digital products and experiences, things that can have recurring subscription revenue. That could be an interesting approach, but not every company is set up to do that — and you do that by acquisition.”