Not many companies experience a genuine coup. But FaZe Clan, the gaming collective, recently did, and lived to brag about it. On August 17, 2018, employees raided the company’s Los Angeles office, grabbing computers, gaming equipment, and furniture, and leaving behind empty boxes of expensive electronics. Pictures of the spectacle would later make it into lawsuits. At the time, FaZe Clan’s then-president Greg Selkoe proudly proclaimed “takeover” on Instagram as his followers responded “Fuck yeah!” and “Super dope!!!” Less than four years later, this same company is planning to go public at an anticipated $1 billion valuation.
FaZe Clan, if you’re over the age of 40, is an outfit of elite gamers that includes celebrities like Lil Yachty and N.F.L. star Kyler Murray among its members. But FaZe is more than just some e-sports franchise competing in Call of Duty tournaments. They’re popular content creators too, and, with more than 350 million followers on social media, these gamers are really in the business of selling a Gen Z lifestyle. The mansion where most of the crew lives has gotten the 3D tour treatment by The New York Times and their ambitions have been the subject of a fawning profile in the paper as well. (Several, actually.) The FaZe Clan has experienced departures, as all companies do—“It’s time for gaming to clean up its act,” Selkoe declared when he left in July 2020 to start a less fratty rival—but the unbridled Clan marches onward. The latest splashy announcement, as revealed by Axios on March 22, has the FaZe Clan adding WWE’s Stephanie McMahon, Snoop Dogg, media executive Ross Levinsohn, and others to its board of directors.
Up next is a public company listing (“FAZE”), via a planned merger with the blank check firm known as B. Riley Principal 150 Merger Corp. The SPAC finance fad might be fading, but the FaZe Clan is hoping to jump aboard the gravy train before it’s too late. Of course, a public listing also requires a heap of public disclosures, and registration statements filed with the S.E.C. reveal a number of remarkable facts about the business of monetizing gaming influencers—and some of the incredible legal headaches involved with managing them all.
FaZe Clan, now led by chief executive Lee Trink, lost a net $23 million on $38.8 million in revenue through the first nine months of 2021, but what jumps out when perusing the S-4 (read here), is how beholden the FaZe Clan is to identifying and keeping talent. Sure, the document includes perfunctory references to business opportunities in the metaverse. But what really jumps off the page is the financial precarity of the influencer industry. E-sports professionals, influencers, content creators—call them what you will—are primarily in the business of winning prize money and sponsorships. In that light, FaZe Clan is akin to a small, undiversified entertainment studio. A single content creator, for example, is reported by FaZe Clan to represent 16 percent of its revenue.
From the securities filings, we also get a look at the company’s overhanging legal risks. While the outfit’s famous legal battle with Fortnite star Turner “Tfue” Tenney over what he claimed to be an “oppressive” contract doesn’t pop up (probably because it’s been settled for a couple years now and doesn’t bear material impact on the future), the company did list the case it had been defending against influencer Alissa Violet over equity she claimed being owed. (Though the court records suggest that’s recently been settled too.) The S-4 also reveals that FaZe Clan has been involved in an arbitration with the company’s former chief legal officer, Phillip Gordon, who was terminated after an internal investigation and is now alleged to have committed fraud and breach of his fiduciary duties. (Gordon denies the company had proper cause to fire him and has filed counterclaims over millions in denied severance pay.)
But the legal matter that really stands out harkens back to the 2018 coup that I noted above. The drama appears to stem from FaZe Clan’s unfulfilled ambitions in the social media space, and their decision to enter into business with a third party, a company called Hubrick, that promised to solve all their problems—and then alleged to own FaZe Clan. I started following this case almost immediately upon the first legal filing regarding the dispute, just a week after the 2018 raid, although I’ve never written about it before. In fact, few have, maybe because a good portion of the initial legal papers were filed under seal before later exploding in complexity. Amazingly, the S-4 reveals exactly how it all concluded.
In 2016, according to court documents, Hubrick, run by a Norwegian businessman named Sebastian Geurts, approached FaZe Clan with the idea for a new app that would be organized around specific social communities. In one declaration, he said he decided that the gaming community would be a perfect fit for his app. He also claimed that FaZe Clan, whose members he grew friendly with, was in “chaos and crisis” around this time before he “decided to step in to help restore order, grow the business and lead.” Eventually, he alleged, Hubrick and FaZe Clan agreed to merge. He says he poured $10 million into the company.
Now-C.E.O. Lee Trink and other FaZe leaders would later claim that Geurts misrepresented Hubrick’s financial state and fraudulently induced the merger agreement. In 2018, they went to court for independence. Meanwhile, another Norwegian businessman named Michael Stang Treschow says he was manipulated into investing millions into the enterprise, based on Geurts’ representation that his company had revolutionary technology that “would rival Twitter” and that Hubrick/FaZe would become a dominant player in the social media and e-sports worlds. Treschow alleges that Hubrick told him the company had already signed content partnership deals with Warner Bros., Sony Pictures, Paramount and Fox.
The raid on the company’s Los Angeles offices was basically an attempt to defenestrate Geurts from the business. He was frozen out of computer networks and bank accounts. His side, through counterclaims, would characterize what happened as “unabashed theft of a business” and “willful corporate banditry.”
For nearly a year, the sides exchanged documents as part of the discovery process and participated in depositions. Then, FaZe Clan and Hubrick settled. Hubrick got $6.5 million, a new grant of 215,911 shares of FaZe common stock, and certain board observation and nomination rights.
But it wasn’t quite over. Hubrick believed the 215,911 shares would represent 15 percent ownership of FaZe Clan, but the stake was diluted when Trink, Selkoe and other executives allegedly got “excessive and underpriced” options grants in their compensation packages. So a second round of litigation commenced with FaZe Clan counterclaiming that it was actually Hubrick breaching the settlement agreement by continuing to litigate against Treschow, who was then on FaZe Clan’s board of directors. (A Delaware court ruled that FaZe Clan had to pay for Treschow’s defense against Hubrick.)
Last June, the parties arrived at a second settlement. Hubrick got an option to purchase 150,000 additional shares at a discount. A few months later, Treschow won his own settlement, wherein he received $845,000 from FaZe Clan and a little more than two million shares. (FaZe Clan didn’t respond to a request for comment.) These deals seemed to clear the way for going public via the SPAC merger even if they left the Norwegians with big stakes in a business now valued at $1 billion.
Will that target valuation hold up, presuming the FaZe Clan’s SPAC merger is successful? The company’s financial expectations for the next few years are pretty rosy. FaZe Clan may have lost money this past year, but by 2025, the company believes revenue will surpass $650 million with a gross profit of $210 million. Take those projections with a grain of salt—the S.E.C. has yet to implement its new draft rule targeting “unreasonable” SPAC disclosures. Still, not bad for an e-sports outfit that only recently recovered from an attempted coup.