What is going on with the financial woes in FaZe and Heroic? *

Two of the top Counter-Strike organizations have been in financial headlines for all the wrong reasons recently — we break down what is happening.

Editor's note: A previous version of this story included mention of Astralis as a team experiencing financial woes in the headline. That error has since been corrected.

Financial uncertainty has been a regular theme across esports in 2023. What is described as a "market correction" has already caused layoffs, substantial downsizing, and a loss of sponsorships across many esports organizations, including Cloud9, TSM, The Guard, 100 Thieves, and OpTic. Organizations have been increasingly struggling — most had already been operating with significant losses even before the market correction —, and three top-level organizations in Counter-Strike have not been left out of the mix, affected by their public listings on the market.

Chief among them is FaZe, whose woes began early into 2022. The American organization went public and entered the NASDAQ stock exchange in July 2022 following a merger with a special purpose acquisition company (SPAC), a deal that artificially inflated the organization's value on the stock market and gave them a valuation of $725 million. FaZe had already been incurring operating losses before the merger at such a rate that it was running out of money. Opting to go public via SPAC allowed the organization to raise necessary capital and avoid red tape rather than spending extra months crafting their own initial public offering (IPO) in a desperate bid to rapidly raise capital.

That deal looked substantially bleaker over the year as FaZe's stock value plummeted from a high of $20.08 in August 2022 to a recent all-time low of $0.40 on March 20, 2023. The initially over-inflated stock price plunged in September amid news that 92% of SPAC shareholders had chosen to redeem their shares when the company went public (rather than keep them as stock in the company), $71.4 million of a $100 million PIPE investment being used to fund operations had defaulted, and that the company only had enough cash on hand to fund operations through November 2023, according to Forbes.

Within a week, FaZe's stocks fell from $14.75 to under $5, and they have continued to drop ever since amid growing uncertainty following subsequent financial reports released by the company. On January 20, 2023, FaZe's stock closed below $1 for the first time, and just over two weeks later, the organization's stock dipped below that threshold once again. It hasn't recovered since, which has prompted the NASDAQ stock exchange to issue a deficiency notice: If any stock's minimum bid price remains below $1 for 30 consecutive trading days, the exchange sends a notice advising the company that it has been afforded a "compliance period" of 180 calendar days to bring its share price back above $1 for at least ten consecutive days.

Now, FaZe are reportedly considering a possible restructuring that would involve taking the company private again according to Sports Business Journal, but to do so would have to remove all available shares from the public. According to sources close to the aforementioned publication, FaZe would need between $40 and $60 million to complete that restructuring process, however, they also recently reported a $50 million loss.

Going private after being listed on the market —called delisting — is also an avenue Astralis is exploring, albeit without the pressure of the NASDAQ and a deficiency notice bearing down upon them. The Danish company announced on March 30 that its board of directors had decided to initiate a strategic review "to consider the future position of the company." Astralis' initial public offering was $1.31 (8.95 DKK), but their shares now trade at $0.24 (1.63 DKK) — something which the company recognized in the statement, saying that shares now trade "at a material discount to the price of the initial public offering."

In undergoing a strategic review, the board of directors will assess the possibility of delisting the company's shares, combining with another company, issuing new shares, making a sale of all or some of the company's shares and/or assets, or a combination of some or all four options. Astralis had reportedly tried selling their League Of Legends European Championship slot in the past, a highly valuable asset that the board could also explore selling again. Even with their share price trading at a material discount, Astralis has reported that financial targets for the upcoming year show a net revenue between $12.4 and $13.2 million (85-90 million DKK) with earnings before interest, taxes, depreciation, and amortization (EBITDA) in the range of $0 and $732,000 (0-5 million DKK).

HEROIC, another organization that has made recent headlines amid a struggle to raise sufficient capital to continue operations, had their board recently choose to issue new shares to inject enough money into the company to survive through summer 2023. The company had alerted investors in a shareholder notice that they would require $7.5 million USD (80 million NOK) to sustain business operations until 2025, of which a minimum of $938,420 (10 million NOK) would be needed before summer 2023.

The Norwegian company has similarly struggled since their IPO, with its stocks initially valued at $1.85 (19.76 NOK) and now only valued at $0.075 (0.80 NOK). In a bid to sustain operations, the company called a meeting on March 20 and made efforts to set a price on new shares that would be issued and purchased by shareholders. However, their first attempt failed, and their asking price of $0.19 (2 NOK) per share fell to $0.095 (1 NOK) in their subsequent meeting, which was ultimately accepted by shareholders.

Concerns remain for the organization as their long-term cash flow issues have not been fixed, however, and the funding obtained — $938,420 (10 million NOK) — is only enough to sustain them through summer 2023.

The same is the case for FaZe and Astralis, who may both delist in the near future. Despite housing successful Counter-Strike lineups, the organizations are suffering alongside the rest of the industry with recurring cash flow issues and burgeoning debt. With less venture capital available, fewer sponsorships, and even $210 million naming rights sponsorships with crypto brands falling apart, esports organizations have a rocky few years ahead of them as they look to find ways to survive in the current economical climate.

With help from Ryan Friend.