Fresh off a big crypto scam involving a number of its members only four months ago, Faze Clan announced today that the group is about to become a publicly traded company, meaning fans will soon be able to buy shares. Their initial valuation? Oh, $1 billion.
The move was announced in a press release posted to the group’s website earlier today, which is full of exactly the kind of language you’re expecting and hoping it to, like:
FaZe Clan is at the forefront of the global creator economy — an industry centered around innovative digital content development fueled by social media influencers, creators and businesses who monetize their content online. With a leading digital content platform created for and by Gen Z and millennials, FaZe Clan has established a highly engaged, loyal global fan base of over 350 million across its combined social platforms that rivals established major sports leagues and generates more social media interactions than the next top eight esports organizations combined.
They’re estimating that this will raise nearly $300 million in cash, which they’ll immediately reinvest into a “global multi-platform growth strategy spanning content, gaming, entertainment, and consumer products, including potential acquisitions”.
This is big news for a group of guys who started out making trick shot YouTube videos, but there are also some concerns here. Firstly, you need to be 18 to buy shares, which rules out most of Faze’s fanbase. Secondly, while Faze Clan and all their associated efforts are popular as hell, there is no way this company is worth $1 billion at the moment. As DoTEsports’ Jacob Wolf says, “The fact FaZe will be valued at $1 billion because of this SPAC deal is wild to me. Feels all hype and no sauce”. Other major esports teams have gone public for only a fraction of this, and some of those, like TSM, offered far sounder investments as part of their offering (like PC hardware) than Faze’s more fickle focus on “content”.
That’s not to say Faze won’t change this. Like they said in their announcement, they’ll be looking at acquisitions, and given their background you’d expect those to have something to do with esports and video games. But those haven’t happened yet, so valuing them at such an astronomical price ahead of time sure sounds optimistic.
Then there’s the nature of the offering. Normally when a company goes from being privately-owned to selling shares on the stockmarket, it does so in an IPO, or Initial Public Offering, which simply takes the existing private company public and has long been the most traditional approach. In the last few years, though, there has been an explosion in SPAC (Special Purpose Acquisition Company) deals, which are also known as “blank cheque companies”.
As the Wall Street Journal explains (emphasis mine):
A SPAC is a shell firm that raises money and begins trading on a stock exchange to merge with a private company and take it public. The private company then replaces the SPAC in the stock market. SPAC deals have exploded in the past year, in part because they allow startups such as FaZe Clan to make business projections that aren’t allowed in traditional initial public offerings.
Like, say, valuing your company at $1 billion? In this case, Faze are teaming up with “B. Riley Principal 150 Merger Corp”, and in 2022 once merged the company will be known as “FaZe Holdings Inc.”, trading on the stockmarket as “FAZE”.
For months now, there has been increasing concern that this rush of SPAC deals are a bubble waiting to burst, much like a similar trend—reverse mergers—did a decade ago, under extremely similar circumstances. Goldman Sachs chief executive David Solomon has said, for example, that the SPAC boom is not “sustainable in the medium term.”
HBR also points out that everyone from the Financial Times (“SPACs are oven-ready deals you should leave on the shelf”) to SEC Chairman Jay Clayton (the SEC are now looking at tightening the rules related to SPAC projections) have expressed reservations over the boom, owing not just to the bubble risk, but also to factors like SPACs not requiring the same levels of disclosure an IPO requires, and that the value of most SPAC companies actually falls by the time they begin trading.
This of course means nothing to you unless you’re a huge Faze fan or are considering investing money, but for everyone else it’s just some stuff to bear in mind as we watch this develop over the coming months.