Text / pie sauce
"Listing is the peak, and it is difficult to restore the scenery."
This phrase could not be more appropriate to describe Faze Clan's development over the past year. From the first club valued at $1 billion (about 7.277 billion yuan) to penny stocks that now cost less than 20 cents, Faze has taught everyone who follows the esports industry a master lesson: how to run a club that fails.
The "main teacher" of this class is Lee Trink, a 55-year-old American entrepreneur.
Before taking over as CEO of Faze in 2018, Terlink knew neither gaming nor esports, relying solely on his previous business experience to gain the power to run an esports club. After becoming CEO, Terlink pulled Faze into the abyss with one wrong move after another.
Source: Lee Trink social media
On September 12, Faze officially announced the termination of its contract with Terlink, effective immediately. Although it is a bit harsh to attribute Faze's failure to him alone, as the helm of the company, he must not be able to get rid of it. After Link's fire, many former employees spoke anonymously, showing Link's boundless operational thinking.
To sum it up in one sentence, it is crazy to buy volume, but do not consider the stock. Although spending money first and then making money is a stage that most companies go through in the early stages, whether money is spent on the cutting edge is the key to the success or failure of the company. In Trick's case, he completely missed his way. According to some employees, Mr. Linker spends lavishly without considering how much money the company makes.
Los Angeles-based Faze rents a series of luxury properties that cost $60,000 a month. In addition, Terlinck took his artists to high-end restaurants in Los Angeles and wore a diamond-encrusted necklace emblazoned with Faze's "F" logo. Moreover, Faze also bought the house where Justin Bieber lived before at a high price, and operated it as an apartment (including contestants and content creators) and party venue for the company's employees. After the listing bell rang, Tellick spent $1.7 million to ask renowned rapper Travis Scott to sing for 15 minutes at the celebration party.
Source: YouTube video
Regarding this lavish attitude of spending money, Terlink said, "We are not squandering money, but creating a myth/myth."
The subtext of this statement is that when young people see Faze's luxurious lifestyle, they will be attracted to the brand, and they want to get this lifestyle, and it will be much easier to make money on them.
But the beating of society will not spare people who cannot see the situation clearly. At the end of 2021, Faze's debt had exceeded $70 million, which led Trink to consider and implement the financing method of going public. But when an unprofitable company rushes to go public, all that awaits them is to be scrutinized and collapse. With the backdoor listing of the SPAC, Faze successfully raised more than $100 million.
Although the amount was lower than the company's internal expectations, it also helped them pay off the company's debts and became a hot news topic with the publicity of "valuation of more than 1 billion". At its peak, Faze's share price exceeded $20 per share, but now it's less than 20 cents, and the situation is not optimistic. In 2022, Faze lost more than $48 million for the full year. Before 2023 is over, they have already carried out two rounds of layoffs. At present, Faze has more than 100 employees and a total of 14 esports clubs and 54 esports players.
Source: Google Finance screenshot
Before Terlinck was fired, news was already raging that Faze was considering delisting. But even if Faze does not voluntarily delist, they are close to the time when they are forced to delist by Nasdaq. Not long ago, Astralis Group, the first esports club to go public, launched a delisting process, declaring that the listing experiment had failed.
As one of the most well-known brands in the European and American esports/gaming field, it is really embarrassing that Faze has ended up in this situation. But for the most part, behind these failures is the incompetence of a management led by Stephen. When an executive who does not understand esports and games takes advantage of the wind to sit in the position of manager and run a club with narrow and unprofessional knowledge, the failure is predictable.
Source: Bloomberg
In addition to the examples mentioned above, there are many more ironic examples of Trink. In 2022, legendary rapper Snopp Dogg became Faze's ambassador. Faze offered him $1.9 million worth of stock, board seats, and an additional $240,000 worth of stock to his children and partner. But such a huge investment, even the right to use Snoop's resources for investment promotion has not been obtained.
You know, Faze said in the prospectus that its overall reach exceeded 500 million people, which is quite a considerable number. But now looking back, more than 200 million of that came from Snoop Dogg, but Faze couldn't commercialize those 200 million traffic. Such an illogical cooperation makes people wonder if Terlink is an "inner ghost" sent by a competitor. In 2021, Terlink's annual salary was $1.38 million, which dropped to $730,000 in 2022.
All of Terlink's business cooperation logic revolves around traffic thinking. However, in the market environment where sponsors and advertisers emphasize precise reach, the old-school bosses led by Linker are still advocating overall reach, using the old-fashioned business logic to attract investment and find investment.
This approach is still effective in economic upswings, but it cannot convince advertisers in the context of tightening their belts, nor can they be subject to market supervision and judgment. Previously, Forbes said that the Faze brand has more than 100 million fans on Youtube, but each fan can only bring 36 cents of revenue to Faze, and many of these 36 cents are also distributed to streamers.
Source: Faze Clan social media
On the eve of Faze's launch, Trick made a lot of noise: comparing Faze's development trajectory to Steve Jobs' Apple; Faze is the representative of "cool kids"; By 2025, Faze's revenue will reach $650 million, etc.... Now it seems that it can only be described as a dream. In the first half of 2023, Faze's revenue was only $24 million, down 30% year-over-year, and the company's loss exceeded $28 million.
Faced with an 18-cent share price, Faze's board finally couldn't bear it anymore and fired Terlink before finding a replacement. At the same time, Faze, based on "reaching Generation Z", wrote the financial report in black and white to confirm a fact:
Going public without finding a stable way to make a profit, esports clubs have only one fate - delisting. But judging from the many examples of failure, "delisting" may be a good thing for esports clubs. Can't eat hot tofu in a hurry. As a young market and industry, the esports industry needs more precipitation, and the pressure brought by the listing can easily crush the club. Before finding a suitable commercialization model, you should pay more attention to internal cultivation rather than rushing to achieve results.