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Even among the many spectacular failures of SPAC-era public stock offerings, esports’ Faze Clan was an especially bright flame-out. In 2022 Faze was valued at more than $1 billion in the stock market after coming public by a blank check merger. A combination of missed financial targets and heavy executive turnover quickly soured Wall Street last year—even Snoop Dogg jumped ship. It was scooped up by the Jerry Jones-backed GameSquare in October for $14 million—or 1% of the value the business had a year earlier and lower than the initial announced price.
But while it seemed Faze was destined to fade away, the clan is seeing a revival under GameSquare, at least operationally, giving hope that the once ballyhooed esports sector can reward investors again.
“There’s a real opportunity now that things have moved from … some crazy valuations now into, quite frankly, the opposite,” Justin Kenna, CEO of GameSquare, said on a phone call. “We’ve definitely seen some consolidation in the space, which is healthy and positive. If you look at fundamentals, market caps, revenue ratios and so forth, I’m very bullish about the landscape.”
GameSquare is an esports venture formed by Dallas Cowboys owner Jerry Jones and Texas real estate baron John Goff. The venture has cobbled together smaller esports entities over the years and is now listed on the Nasdaq Stock Market. Jones’ Blue & Silver Ventures is the largest shareholder, with just over 19% of the company, a bit more than billionaire Goff, who was an early investor in Roger Staubach’s real estate company. In 2021, Jones and Goff hired Kenna away from Faze, where he had been chief financial and chief investment officer for three years, credited with a key role in helping the group grow into one of the largest esports ventures.
“It obviously was a full-circle moment for me, acquiring Faze,” Kenna said.
But the executive wasn’t sentimental. “This company is really bloated,” he said of Faze at its acquisition. “How do we build an infrastructure and have a disciplined business approach to this incredible brand?”
One way was slashing Faze’s cost structure. Kenna has lopped $18 million in annualized cost from Faze, dropping head count about two-thirds from over 100 at acquisition. He also got out of a pricey L.A. headquarters Kenna called “opulent” —it boasted a skateboarding ramp and an AstroTurf staircase—and moved operations to simpler digs in Frisco, Texas. That move saved $170,000 a month.
But cutting costs only does so much. Just as important is reviving the brand, which had seen viewership and social engagement slip. Part of the move was splitting Faze into two businesses, media and esports. The next step was selling $11 million of stock in the Faze Media to Matt Kalish, DraftKings’ president and cofounder, then selling a 25.5% stake for roughly the same price to Richard Bengston, aka Faze Banks, one of the Clan’s founders, linking him more closely with Faze’s success.
The moves came with GameSquare “rebooting” Faze Clan this spring, dropping some 17 content creators to refocus on fewer, more engaging personalities. The result was a more than tripling of weekly hours of viewership on social media from 1.5 million hours in April to 4.8 million July, putting four of Faze’s creators in the top 50 most-watched streamers worldwide. If trends hold, Faze will have doubled its quarterly views to 2 billion since the reboot.
That engagement with viewers is vital to GameSquare’s business model, which is mainly about delivering access to younger consumers to marketers. “The audience is massive, and it’s growing, but traditionally unless you’ve been a [game] publisher or platform, you haven’t been monetizing these eyeballs,” Kenna said.
Indeed, esports itself—competing in leagues and winning prize money—is only about 11% of GameSquare’s revenue. Roughly half of the business now comes from content and intellectual property outside of esports leagues, such as branded headphones for gamers, a Nike-LeBron-Faze sneaker and even Faze-branded buffalo chicken pizza rolls in the grocer’s freezer section.
One-third of GameSquare revenue comes from a full-service creative agency that helps publishers market new games to target users and helps put mainstream brands in front of gamer consumers. They’ve helped Coca-Cola and Mastercard place their brand in Fortnite, for example, while building Cowboys Game Time as an interactive experience inside the popular open environment video game. The balance of the business is in software-as-a-service, offering data analytics and insight capabilities as well as managed services for companies to offer consumers ways to manage how their data is used.
This year, the three business lines should generate more than $100 million in revenue. Of that, Faze should account for 35% to 40%. GameSquare also expects its losses to narrow, with Wall Street analysts projecting it becoming profitable in 2026, according to data compiled by S&P Global Market Intelligence.
“There’s this misperception that gamers are young kids with no disposable income,” Kenna said. “In reality there’s this enormous audience in the 21-to-30 bracket with high disposable income that brands have been trying to reach forever.”
But the damage from esports’ prior failure to deliver on the promise of converting social media and gamer audiences into consumers continues to pound the sector. When Faze was valued at more than $1 billion in the market, it was projecting $93 million in annual sales for its first year as a publicly traded business. It missed that target. Today, GameSquare’s $100 million revenue projection has earned the business just a $12 million market cap—an unheard-of price-to-sales ratio of 0.12. The typical ad agency price-to-sales ratio is this year is about 1.0; that is, $100 million of sales should imply GameSquare stock is worth close to $100 million. Esports competitor Ninjas In Pajamas went public in July at $9 a share and is down 21% so far, but still has a market cap of $400 million, more than four times its projected 2024 revenue. Nine other esports groups publicly traded in various world markets have fared much worse and are now largely penny stocks.
“It’s been a lot of work, and it continues to be work, building back trust,” Kenna said. “When you are able to acquire a business that was at one point trading north of a billion dollars in the public markets for just $14 million of stock, that’s obviously a huge opportunity. But there’s certainly people who are going to have a perception of being burned. That’s part of the cleanup.”
The backing from Jerry Jones provides Kenna with a clear, obviously favorable analogy, as he endeavors to get people to view the esports ecosystem as a long-term grower.
“When Jerry Jones bought the Dallas Cowboys, they were in an enormous amount of debt and they were far from being America’s team,” Kenna said. “On paper, it probably wasn’t the smartest decision to make. Now it’s the most valuable sporting franchise in the world. My point is this stuff does take a little bit of time.”
