Three months after its July 2022 debut on the Nasdaq, FaZe Holdings Inc threw an exclusive party at a San Diego nightclub, hiring the rapper Travis Scott to promote its stable of video-game stars and YouTube personalities. Social-media influencers mingled with gamers in expensive streetwear. Many looked bored as they filmed the event for their online channels. Well past midnight, Scott appeared for a 15-minute show, his voice barely audible over the thumping bass.
The party, which cost US$1.7mil (RM7.96mil), got the company and a sponsor’s name in hundreds of Google search results, YouTube videos and Instagram stories. Lee Trink, FaZe’s chief executive officer at the time, hailed the event as a great success. “We achieved all of the things we would have hoped for, including making money,” he said in an interview after the party. But with losses mounting and the shares tumbling, the company fired Trink, 55, on Sept 9, replacing him on an interim basis with Chief Financial Officer Christoph Pachler.
Interviews with seven former employees describe a mismanaged organisation marked by poor spending decisions, excessive pay and expansion into unprofitable categories like esports. The company, which employed 112 people at year end, has been enmeshed in controversies involving its online personalities and announced two rounds of layoffs this year. Los Angeles-based FaZe reported a US$48.7mil (RM227.92mil) loss from operations last year.
After initially projecting that it would debut on the stock market with a US$1bil (RM4.68bil) valuation, its shares have tumbled to 18 cents from over US$20 (US$93.60), reflecting scepticism that the social-media activities of young, largely male gamers could ever be a sustainable business – even if they have millions of fans.
Last month in New York, followers of one influencer, not a FaZe Clan member, set off a riot in Union Square over a giveaway of game consoles. Management, meanwhile, is evaluating its options, including a possible sale of the company, Trink said before he left. “FaZe is definitely going to weather it,” he said in a June interview. “FaZe is no stranger to controversy. It’s part of why we’re so compelling.”
Trink couldn’t be reached for comment after his dismissal.
The FaZe Clan, as the group of gamers called themselves, was groundbreaking more than a decade ago when its teenage founders drew millions of followers to their YouTube channel to watch them play Call of Duty, Activision Blizzard Inc’s first-person shooter game. FaZe’s creators pioneered the “trickshot” video, in which they vanquish opponents after jumping off a building or spinning around. As their popularity grew, the founders brought more talent on board and posted videos about their other interests, like skateboarding and pulling pranks. The strategy was simple: Millions of people will watch gamers they admire, and advertisers and sponsors will follow. The company now has a roster of 127 Internet personalities, posting on sites that include Instagram and Twitch.
But translating all those eyeballs into a profitable business has proved daunting – and still eludes the company despite its impressive 512 million social-media followers. The so-called creator economy was in its infancy in 2014, when the energy drink G Fuel helped procure FaZe’s first “content house” in Plainview, New York. G Fuel paid the FaZe team US$1,500 a month to feature its beverage in videos and covered the US$6,000 rent on the property, where the players actually lived and uploaded their clips. G Fuel Chief Executive Officer Clifford Morgan came by every now and then, tidying up the place and taking out the empty pizza boxes.
Two years later, FaZe moved to Los Angeles, where YouTubers were flocking for a whiff of Hollywood glamour. The members posted videos about vaping conventions (27 million views), getting tattoos (nine million views) and pretending to get a woman pregnant (6.7 million views), in addition to playing Call of Duty.
In 2017, the company brought on Greg Selkoe as “PreZident.” The founder of online clothing retailer Karmaloop, Selkoe viewed FaZe as “a new iteration of youth culture, just like skateboarding and hip hop.” FaZe had “almost no revenue” when he joined, Selkoe said in an interview. The company confirmed that. Trink joined FaZe as CEO the next year. A former child actor and Brooklyn prosecutor, he had been advising the company since 2016 and had also done stints as an executive with Virgin Records and EMI Capitol Music. Trink loved the stage but had no experience in gaming, esports or the creator economy.
Over time, the two developed a more centralised organisation that generated revenue in several ways. FaZe sold sponsorships to brands, whose products were featured in videos made by the FaZe personalities. The company also earned money from ads that ran alongside the YouTube videos. FaZe then dove into another, more tumultuous wave: esports. Epic Games’ blockbuster first-person shooter Fortnite, released in 2017, rocketed FaZe into the mainstream. The company’s Call of Duty pros easily parlayed their skills into the cartoony kids’ shooter, which boasted 78.3 million monthly players by late 2018. The New York Times ran a feature on FaZe, later to be followed by a Sports Illustrated cover.
As the idea that the public would watch groups of professionals play in video-game tournaments took off, FaZe began investing more in its esports lineup, which has since grown to include 54 players across 14 teams. The esports industry has experienced a broad decline since 2018, however. Investors and sponsors have soured on the idea that competitive gaming could rival traditional sports. Most of the FaZe teams have been unprofitable, according to a video posted earlier this year by Nordan “FaZe Rain” Shat, a company co-founder. FaZe doesn’t break out specific esports expenses, but said its revenue in that business has continued to climb and that its esports presence helps sell broader sponsorship packages.
Management disputes arose. Selkoe and other FaZe executives left in 2020 to found XSET, an esports company based in Boston. “We didn’t leave on good terms,” Selkoe said, adding he wasn’t “a huge fan of” Trink’s management style. Selkoe took issue with FaZe’s almost all-male roster of gamers and has made diversity a core part of his new company’s image. FaZe paid Selkoe US$3.2mil (RM14.98mil) to settle a lawsuit over his departure, according to a public filing.
Trink also focused on making FaZe a lifestyle brand, in the process elevating himself into a thought leader in the creator economy, once comparing FaZe’s trajectory to that of Apple Inc under Steve Jobs. FaZe’s collaboration with Japanese artist Takashi Murakami in 2020 brought in over US$1.2mil (RM5.62mil) in less than four hours from sales of limited edition jerseys and mousepads. Looking beyond video games, the company secured sponsorship deals with blue chip companies including General Mills Inc. and McDonald’s Corp. Revenue jumped 42% to US$52.8mil (RM247.10mil) in 2021 and peaked at US$70mil (RM327.60mil) last year.
But even as sales grew, so did expenses. FaZe rented a series of luxury properties that served as homes and filming locations for its media stars. The costs, including rent, utilities and security, ran to as much as US$60,000 (RM280,800) a month. Among the properties was a lakefront mansion in suburban Los Angeles, now estimated to be worth US$12mil (RM56.16mil), that FaZe members said was previously home to singer Justin Bieber. Trink took FaZe’s influencers to fancy Los Angeles steakhouses and wore a diamond-encrusted necklace featuring FaZe’s “F” logo. “We weren’t throwing money in the garbage,” Trink said. “We were creating a mythology.”
In June 2020, one of the company’s stars, Nick “Nickmercs” Kolcheff, signed a three-year contract worth US$500,000 (RM2.3mil) annually, according to a document reviewed by Bloomberg. He also got options on 105,000 shares. The company said it doesn’t discuss individual deals with talent. Gabriel del Rio, a representative for Kolcheff, said the gamer has generated US$2.5mil (RM11.70mil) in merchandise sales and 250 million viewing hours on Twitch since first joining FaZe in 2019. In March of last year, the company announced that rapper Calvin “Snoop Dogg” Broadus Jr would join its board. As part of an agreement that required him to post FaZe content on his social-media channels, Broadus and companies tied to his wife, son and manager received US$2.6mil (RM12.17mil) in restricted stock, payable over time, according to a copy of his contract. Trink earned US$731,000 (RM3.42mil) in salary and bonus in 2022, down from US$1.38mil (RM6.46mil) the year…
Credit: The Star : Tech Feed
