Foreign in July of 2022 FaZe Clan listed on the NASDAQ by merging with a spec at a 725 million evaluation. this made it the first peer play Esports company listed on a major U.S exchange. It is estimated that there are over half a billion Esports viewers around the world and this number is only expected to grow going forward. So it's no surprise that Wall Street wants to get a piece of this.

expanding. Market FaZe Clan seemed like an obvious choice. there are some of the Ogs in the video game streaming and Esports world. It was founded by a group of friends in 2010 who published Call of Duty trick shot videos on YouTube.

Over the years, they grew by signing on, new members, entering Esports competitions and expanding Beyond Call of Duty as they won competitions and expanded their team. Their popularity grew, racking up tens of millions of subscribers across their various YouTube channels, and they started making real money with sponsorships, collaborations, and branded merchandise sales. No wonder investment bankers were captivated and took the company public with us back. Despite the hype, their Short history as a publicly traded company has been a complete and total disaster.

As of the time of recording this video, the stock prices declined 97 to just 27 cents per share with a market cap of 21 million dollars, It is firmly within penny stock territory and they have already received a delisting notice from the NASDAQ. Their revenue is collapsing and their hemorrhaging cash at the current rate, they look set to declare bankruptcy within the next few quarters. While the stock chart looks dramatic, if you look at FaZe Clan's history, the rapid decline should have come as no surprise. even before the SPAC deal was announced.

there were numerous red flags which should have made the company uninvestable at any price. In this video, we'll take a deep dive into FaZe Clan the IPO That never should have happened before we get into the video. Quick word for my sponsors over at: Kudos One of the best ways to save money is by using credit cards for your purchases, which can give you cash back and other rewards when you shop online. If you do a lot of online shopping, these rewards can add up to thousands of dollars per year.

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Stop leaving money on the table and start doubling your credit card rewards with Kudos today foreign structured, kind of like an agency. There's The Phase Clan corporate umbrella on the top. Beneath that, they have dozens of streamers who act as independent contractors. The streamer will stream themselves, playing video games on platforms like YouTube and Twitch, as well as competing in Esports competitions on behalf of phase.

FaZe has a few ways of generating Revenue Firstly, they receive the AdSense revenue from the streamer's YouTube channels as well as the prize money from Esports competitions. They also organize sponsorship deals with various Brands to show up on their YouTube videos and other social media content. They operate an online shop where you can buy overpriced Phase merchandise loaded with sponsorship placements. and finally, they license their name to various food companies to sell phase branded junk food.

In or around 2018 Faye Secured funding from Venture capitalists and hired a professional CEO This is when they started to get serious about scaling their business. They did this by signing on a massive number of new streamers with FaZe Clan being one of the most popular Esports groups. Thousands of hiring Gamers wanted to join, allowing Phase to quickly build up their roster. They expanded into a large number of video games, including Halo Counter-Strike and even more obscure games like Rocket League.

They appeared to have very few requirements of what it takes to become a phase streamer. For example, in 2019, they signed on an 11 year old fortnite streamer and allegedly pressured him to lie about his age which would violate labor laws. Ethical considerations aside, they appeared to be doing pretty well. As they signed on more streamers, their aggregate subscriber count grew, allowing them to sign bigger and more lucrative sponsorship deals.

In 2021, an investment bank called B Riley created a special purpose acquisition company whose sole purpose was to identify and merge with another company. In October of 2021, they agreed to merge with FaZe Clan. They initially planned a one million dollar valuation B Riley's investors bulked at the high price and they adjusted it down to 725 million dollars, which was still a huge win for FaZe Clan To get investors to buy in, Spax always try to paint a Rosy picture in their investor presentations, but the phase presentation might take the cake for the most absurdly promotional we've seen today. In 2021, FaZe was on track to make just 50 million dollars of Revenue, but they expected this to grow at a compound rate of 90 per year and reached 650 million dollars by 2025..

they also expected to become profitable by 2023, so how would they achieve this? They claimed that Esports and video game streaming was a growing Trend among the younger Generations phase was positioned to benefit from this growth In the SPAC presentation, they pointed out that a recent Travis Scott Fortnite concert garnered 28 million live in-game participants in 167 million YouTube views. A virtual K-pop girl group composed by League of Legends received 450 million views on YouTube And finally, the League of Legends 2018 World Championship Finals had over 100 million unique viewers. The problem is, FaZe Clan had zero involvement in any of these three examples. In fact, FaZe doesn't even play League of Legends making the second two examples completely irrelevant.

This is like trying to promote your basketball team by talking about how popular football is. It makes absolutely no sense. A lot of the spec investors were likely old people who didn't know anything about Esports. They may have erroneously thought that FaZe Clan was somehow involved in these things.

Their second big claim was that FaZe has significant runway for monetization. They point out that traditional sports like basketball, baseball, and football generate between 40 and 90 dollars per audience member. FaZe currently only generated it's 42 cents per unique audience member. If phase could increase their monetization per audience to the same level as traditional Sports, their revenue would increase 100 fold.

But why is Phases monetization rate so low in the first place? Unique audience represents total subscribers to Phase owned and phased Talent channels on YouTube As of July 31st 2021, this added up to 120 million. Remember how phase is structured. They have their main Phase Clan Channel and then dozens of independent streamers who each have their own channels. They added up all the subscribers across all of the channels.

To call this unique audience members is absurd as many people subscribe to multiple phase Affiliated channels. Also, YouTube subscriber count alone means very little. If you look at your YouTube subscriptions, you're probably subscribed to dozens of channels that you haven't watched in years. Very few people take the time to unsubscribe from channels they don't watch anymore.

In the case of FaZe, many of their streamers are inactive. For example, FaZe Banks which is one of the largest channels in terms of subscribers. It's completely inactive. The last upload on their channel was four years ago.

These inactive channels are completely worthless. Yet, they still get lumped into Phase's unique viewers statistic. They also claim that they would eventually create linear television series. This makes no sense.

The entire premise of streaming in Esports is that as taking market share from linear television. In any way, no cable channel would ever touch phase with a 10-foot pole. Due to the reputation reasons, we'll discuss shortly. Finally, they would expand into things like Nfts.

This idea is so dumb it's not even worth talking about the fact that they had to resort to misleading statistics and absurd future projections already gives us a hint that the business itself wasn't nearly successful enough to justify the 725 million dollar valuation. While this pack was announced in October of 2021, the Dspac process didn't happen until July of the next year. This talk initially surged more than 50 in the following months, but this was purely technical in nature and had nothing to do with the performance of FaZe as a business 9 92 percent of the stack Investors foresaw that phase would become a dumpster fire, so they redeemed their shares and pulled their money out. This meant that for the first few months, the free flow of available shares was very small, allowing a small number of buyers to pump up the price.

As soon as more shares came onto the market, the stock price collapsed. and as will show, there were numerous red flags which made it obvious from the beginning that phase would be a complete failure of a business foreign. The streamers who make up FaZe Clan are mostly influencers in their 20s. These are not exactly who you would ever consider as serious business people in the face.

Corporate umbrella has almost no control over them. One of the most popular members was a man named Frasier Katri, who goes by the stage name Phase K Up until 2021, he was one of their most popular streamers with millions of subscribers. On YouTube In June of 2021, the investigative YouTube Channel Coffeezilla started publishing videos exposing an alleged crypto pump and dump scheme involving multiple internet personalities including Phase K. K allegedly deceived his followers into buying the coins and proceeded to participate in a rug pole bagging hundreds of thousands of dollars worth of ill-gotten gains after the alleged cryptoscam was exposed.

FaZe Clan Fired K and suspended two other members who were allegedly involved, but the damage to the brand was already done. It's important to note that the Phase K controversy happened months before they agreed to merge with B Riley's bag. Given the high profile nature about the controversy, B Riley either knew or was reckless in not knowing about it, yet they went forward with this pack anyway. perhaps.

B Riley Thought that with the hundreds of millions of dollars from this pack, Face could grow their way out of the mess and that's what they tried to do. They went on a hiring spree, signing on as many new streamers and Esports players as they could to grow as fast as possible. They lowered their standards, signing on streamers who just got a few thousand views per video. They were losing money, but they didn't seem to care.

Would this growth at all cost Strategy: They were able to grow their revenue by 30 in 2022, their first full year as a public company, but when we look at the segmentation of the revenue, we can already see cracks starting to form. FaZe has three main sources of revenue, brand sponsorships AdSense revenue from YouTube views, Esports winnings and finally the sale of consumer products. In 2022, they landed a few big name sponsors which saw their sponsorship Revenue increased by 69, their direct YouTube Revenue declined by 10 in their consumer product Revenue decreased by 40 percent. This indicates that viewership across phases YouTube channels has been increasing.

Not only that, but consumers are less willing to buy phase branded merchandise. People buy phase merchandise to publicly show their support for the brand. After you learn about phase K's cryptoscam, why would you want to support them? Also, in an effort to drive sponsorship, Revenue they loaded their merchandise with sponsor logos. This hyper commercialization made it obvious that Phase was now a soulless Corporation Trying to extract as much money from their fans as possible.

This is a far cry from what made FaZe popular in the first place which was young Call of Duty enthusiasts posting trick shot videos. When your viewership is declining and you're alienating your audience Your Sponsorship Revenue will inevitably dry up. Their big sponsorship push in 2022 merely served to Kick the Can down the road. As Phase grew and became more corporate, many of the older phase members felt like they were being neglected.

FaZe took a massive cut of their YouTube and sponsorship revenue and they felt like they were getting little if any value in return Because FaZe had no editorial control over their members content, they started criticizing phase with increasing severity. Facecon insisted in making the clothing with me like my merge drop and stuff like that and I was like you know what? it makes sense We'll do it together. It's a good split. We'll make it in-house the design and like the manufacturer process and then I have to go on Twitter to find out that these people haven't received their hoodies two months later and I don't even get as much as an apology and some of those people got the wrong hoodies because you put the wrong print on after that I obviously don't want to do clothing in-house with face anymore so I do it by myself I pay for the designs myself I found a manufacturer myself.

Everything okay I do everything myself I didn't ask face for a single thing I get my own websites Tico.com pay for it everything and then they still contact me trying to get 20 off my profits without ever doing anything. No design, no help with nothing. They're still trying to take 20 percent off my clothing drops and my merch drops and my rug drops because I'm in face. you did nothing for me.

If anything, you were to want to push me away I wanted to make it with you guys and you couldn't deliver. Am I in Phase or not because if I'm not I would like to see a statement that I'm not anymore and I'm I'm it. Trust me. I can stand on my own two legs I have a very good Community I'm not worried about that at all.

You need people like me more than I need you and I know who? you guys? Don't think that you're probably laughing. Oh, we don't need him. You'll be surprised. You need people like me and face I don't need you.

The man in that video goes by the name Tico and has been a member of the FaZe Clan for many years. Despite his brutal criticisms of the company, he is still a member enlisted on their official roster. This is not just an isolated incident, numerous phase members, including some of the most popular ones, have come out blasting the company and its CEO for unfair Revenue splits and general incompetence. At the end of the day, FaZe Clan's entire business model relies on their fan support to watch their YouTube videos, buy their products, and buy their sponsors products.

But if even their own members hate them, why would any fans want to support the company? In 2023, Faze's sponsors started to realize this and pulled back their budgets. Sponsoring phase didn't result in the sales they expected, and they no longer wanted to be associated with an increasingly controversial brand. In the first quarter of 2023, Revenue declined by 41 and in the next quarter it declined another seven percent. In the first half of the year, they generated 24 million dollars Of Revenue in their stacked presentation.

They said they expected to make almost 200 million dollars in 2023. and frankly, the only reason they generated this much revenue at all is because they have some sponsorship deals that have not yet expired. To see just how dead the Phase brand is, we can look at their consumer products Revenue which collapsed more than 90 percent to a measly twenty five thousand dollars in the second quarter. While it used to be cool to wear a phased Jersey, it's now an embarrassment.

Even people who used to be enthusiastic fans wouldn't be caught dead wearing their merch. The company has 21 million dollars of cash on hand. In the first half of the year, they've earned 16 million dollars. They've already received a delisting notice from the NASDAQ and bankruptcy seems inevitable.

It's clear that FaZe was grossly mismanaged. Their rapid expansion over commercialization and lack of control over their members alienated their fan base and destroyed their brand image. But even if it was managed perfectly, the idea of bringing Esports or video game streaming under a corporate umbrella will probably never work. The reason that video game streaming has become so popular is because anyone can do it.

You just need a computer in a webcam. This allows creative personalities to build a following of fans who enjoy their unique playing style. Or Antics having a big corporate Overlord just adds layers of overhead, cost, bureaucracy, resentment, and inviting. It does nothing to increase the quality of the content.

The investment bankers saw that video game streamers could make a lot of money and wanted a way to get involved, but they never had a realistic plan of how to turn this into a profitable business at a corporate level. Alright guys, that wraps it up for this video. What do you think about? FaZe Clan Do you think we will ever see another publicly traded Esports company? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.