Investors Sue Adidas Over Failed Partnership With Kanye West
Shares of Adidas plummeted after the brand announced its breakup with West could cost the company roughly $1.3 billion in revenue
Adidas can’t get away from the aftershocks of its breakup with Kanye West — at least not yet.
The German sportswear company has been hit with a class action lawsuit by investors, who allege Adidas was aware of the risks of its partnership with Ye, formerly known as Kanye West, before severing ties with the rapper/artist/designer.
The securities class action, filed April 28 in Oregon federal court, by names the sportswear company, its former CEO, Kasper Rorsted, and current CFO, Harm Ohlmeyer.
Ye is not named in the suit.
Rorsted stepped down from Adidas earlier this year, receiving $16.9 million as part of a termination agreement. He was replaced by Bjørn Gulden, who recently participated in his first Adidas earnings call.
The lawsuit alleges that before Ye made public anti-Semitic remarks, the defendants were aware of his problematic behavior. Ultimately, according to the filing, Adidas failed to mitigate harmful financial exposure and take swift action, misleading investors.
The class action represents investors and entities who purchased or acquired Adidas securities between May 3, 2018, and Feb. 21, 2023.
The rise and fall of Adidas’ deal with Ye
After Ye’s relationship with Nike ended, Adidas partnered with the rapper in November 2013. By February 2015, Ye debuted the first Adidas sneaker he helped design, the Yeezy 750 Boost, at the 2015 Grammy Awards.
By 2016, the partnership with Adidas and Ye had grown closer. The sportswear giant announced Yeezy-branded footwear, apparel and accessories, a collaboration that Adidas called “the most significant partnership ever created between a non-athlete and an athletic brand.”
It was a successful move for Adidas and Ye, with sales of Yeezy shoes reaching over $1 billion by 2019, and that same year, Forbes ranked Ye as the top-paid hip-hop artist, primarily due to his deal with Adidas.
A public unraveling
By the fall of 2022, Ye was making anti-Semitic and racially insensitive remarks, which have been publicly documented by various media outlets and even Ye’s own social media platforms.
In one disturbing Oct. 9 post on Twitter, Ye posted that he would go “death con 3” on the Jewish population. The post has since been removed from Twitter.
While Adidas began facing calls for a boycott due to its failure to cut ties promptly with Ye, the filing adds that neo-Nazi groups publicly supported him in a public demonstration over a Los Angeles freeway.
The lawsuit points out that after weeks of criticism over Adidas’ failure to end the partnership with Ye, the sportswear brand officially ended its relationship on Oct. 25, 2022.
Did Adidas ignore prior troubling behavior?
While the heat was on Adidas to cut its ties with Ye in October, investors pointed to prior occasions where the rapper had made remarks on slavery, racial issues and politics.
In one instance, in May 2018, Ye suggested that slavery was a ‘choice,’ a comment that Adidas didn’t support but also seemed to dismiss.
Rorsted stated in an interview with Bloomberg TV that the activewear company didn’t support the comments and planned to discuss them with Ye. Still, he commented on the rapper’s value to Adidas.
“Kanye has been and is a very important part of our strategy and has been a fantastic creator,” Rorsted said in the interview, adding that Ye and the Yeezy footwear brand are a “very important part of our brand from a revenue standpoint and how we promote our products.”
After its partnership ended with Ye, Adidas launched an investigation into allegations that the rapper bullied employees and subjected them to viewing pornography.
Financial aftermath for Adidas
Cutting ties with Ye resulted in a financial disaster for the sportswear company.
Shares of Adidas plummeted after the brand announced its breakup with Ye could cost the company roughly $1.3 billion in revenue and left Adidas in an inventory debacle without any seemingly suitable solution.
The subject of Yeezy was discussed on Adidas’ last earnings call, which covered Q4 of 2022. Leadership revealed that the termination of the partnership definitely weighed on its top and bottom line, with profits falling 83 percent after cutting ties with the controversial rapper. Gulden also stated that the company has yet to decide what to do with its Yeezy stockpile, a revelation that seemed to raise an eyebrow with one investor.
When pressed by the investor for a solution on what to do with its Yeezy inventory, which can’t easily be sold due to Ye’s recent comments but also can’t be destroyed due to sustainability concerns, Gulden seemed to push back.
“People will say you cannot destroy, because it’s a sustainability issue, right? So, please don’t destroy,” Gulden said. “And then, those who are like, ‘Please don’t sell because you have a reputation issue.’ So, if you say you’re confused, I can just say that’s the fact, and that’s why we haven’t made a decision on it because it’s a very complicated issue.”
Adidas responds to the lawsuit
The sportswear brand denounced the filling in a statement, calling the claims “unfounded.”
“We outright reject these unfounded claims and will take all necessary measures to vigorously defend ourselves against them,” Adidas spokesperson Claudia Lange said.
Other brands and companies also cut ties with Ye due to his remarks, including Peloton, Sketchers, TJ Maxx, Gap, Foot Locker and Vogue.
The brand has since pivoted to sportswear with an emphasis on basketball and soccer apparel as a means to move ahead from its partnership with Ye.
Adidas is expected to release its next earnings report on May 4.
