FaZe Clan goes public: the beginning or end for esports?

Also: stay motivated this summer, kids!

Hello, and welcome to another edition of the Future Proof newsletter. Advance warning: this is going to be one of those pieces where I, rather patronisingly, explain things to you that you might already understand. On this occasion, it’s the fact that FaZe Clan, one of the world’s premier esports organisations, has gone public.

So here’s the tea (NASDAQ-certified tea, at that): last week, after a somewhat wriggly process involving setting up a SPAC and reconfiguring the brand to draw a wider focus (calling itself now “the voice of youth culture”) Faze Holdings went public with a $725m valuation. This was significantly down on the $1bn valuation they had originally mooted as part of the plan to go public, and, furthermore, the stock value tanked, dropping 30% that same day. I’m not a watcher of the stock market, and this may be fairly normal for SPACs, though I note that, at time of writing, the price has not even remotely recovered.

Anyway, what is FaZe? Or FaZe Clan, as it’s also known?

The chances are that if you’re an adult who doesn’t sit around all day playing video games, you won’t have heard of FaZe. At its simplest level, it’s an esports organisation – so if you imagine what Manchester United is to football or the LA Lakers are to basketball, you get an idea of who/what they are. They constitute a management organisation and a roster of players, who compete in professional video games competitions (for which players receive just a percentage of their earnings as part of their contract with FaZe, an agreement allows them myriad opportunities for other professionalisation). But unlike Manchester United or the Lakers, which operate over a single sport in a single franchise (excepting, necessarily, women’s teams and underage groups) FaZe is more like the continental European model exhibited by sports clubs like Barcelona, Bayern Munich and Olympiacos which play both football AND basketball, at a professional level. So, FaZe’s bread and butter might be Call of Duty or Counterstrike or Fortnite, but in reality they play across a dozen or more different games in different competitions.

What FaZe have achieved, which makes them, I think, unique amongst esports organisations, is cut through. If you play any video game with public lobbies (meaning that you can be sat in your living room in south London playing, via the internet, against people all around the world) you’ll notice that “FaZe” is ubiquitous in usernames, in the same way that “Barca” or “CR7” are if you’re playing FIFA. FaZe has become the first esports organisation to have a dedicated fanbase – a not insignificant fact, given that’s the model which has ensured that football (soccer) has become the biggest business sport in the world.

But according to 2022 valuations from Forbes, Real Madrid, the Spanish giants, are the most valuable football club in the world, at $5.1bn. Like the 2nd placed team on that list, Barcelona, they’re owned by club members. At a more reasonable price point, historic Italian club Inter Milan (15th on the list) are valued at $1bn and owned predominantly by a Chinese holding group and a Hong Kong venture capital firm. I focus on Inter Milan only because that $1bn valuation matches the original pitch from FaZe, despite the fact that Inter Milan play at the San Siro (FaZe play in their players’ bedrooms, mainly), Inter Milan was founded in 1908 (FaZe was founded in 2010), and Inter’s current players include Romelu Lukaku, Henrikh Mkhitaryan and Alexis Sanchez (FaZe’s roster includes olofmeister, Fuzzface, and Bubu Dubu).

So the billion dollar valuation was quite plainly ridiculous, as has been evidenced by the market correction. But what FaZe does have is novelty – and primacy. It’s been well documented that the video games industry is worth something like $200bn right now, which makes it the great cash cow of entertainment media (if it were a sport, it’d be golf). The idea that esports – competitive video game playing that merges the lucrative gaming world with the equally lucrative sports world – could be extremely profitable has been around for a long time. In the 1970s, kids at Stanford were gathering for competitive Spacewar tournaments – and through the 80s and 90s, franchises like Space Invaders, Super Mario Bros and Street Fighter were staples of the competitive gaming industry. But without internet, it was hard to make these events truly global.

Covid has, to some extent, unlocked the possibilities of gaming. I don’t think it’s any coincidence that FaZe is going public now, in July 2022, after two years of massive brand expansion. We have seen the death of arcade gaming over several decades, but covid may have initiated something else – the death of linear gaming. There is so much money to be made from games like Valorant, Fall Guys and PUBG, it’s hard to see publishers investing huge amounts of development capital on titles like Fallout, Bioshock or Red Dead Redemption, which don’t have the potential for that long distance collaboration (RDR’s online version has, not coincidentally, closed in recent weeks). The money – the quick returns – of the video games industry, right now, are in games that more closely mirror the dynamics of competitive sport.

So with that in mind, perhaps the valuation for FaZe is perfectly reasonable. And yet my takeaway from the early days of this move is that there are real, significant challenges facing this industry, that have not even come close to being solved. Here are the five things that concern me most right now: