The Failed Negotiation That Cost Nike Billions Of Dollars In Annual Revenue

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Friends,

In 2016, Kanye West asked Facebook CEO Mark Zuckerberg for a $1 billion investment in his “ideas”, as he was personally $53M in debt. So how did Kanye go from “broke” to billionaire, making more money than all but one celebrity in the world last year?

The answer is simple, his footwear and apparel company Yeezy.

The process to get there? Anything but simple.

Let’s take a look at how one negotiation between Nike and Kanye changed the trajectory of his brand and propelled West from broke to billionaire status.

(Image Source: Forbes)

Let’s start in 2013 - Kanye has already established himself as a bonafide global superstar. He’s produced 7 albums, completed 5 tours, won countless awards, and become an icon in hip-hop culture.

On top of his success in music, he has built a 9-figure footwear and apparel company named “Yeezy”, a shortened version of the nickname “Kanyeezy” given to him by Jay-Z in 2003. The Yeezy brand has released a total of three sneaker styles in conjunction with Nike - two silhouettes, the Yeezy 1, and the Yeezy 2 - along with multiple color variations of each (Source).

As sales of the Yeezy collection at Nike started to explode, Kanye felt underappreciated and approached Nike management with an idea (Source).

So naturally, what did Kanye want? A royalty on all Yeezy shoes sold.

Nike said no, pointing to the fact that Michael Jordan was the only athlete getting a royalty. Instead, they offered to put a small percentage towards a charity of his choice. This time, Kanye declined (Source).

As the saga dragged out publicly, Adidas came calling - inviting Kanye and his representatives to the company headquarters in Germany.

(Image Source: Adidas)

Fearful that Nike might be able to sneak back in, Adidas offered Kanye a historic deal.

The offer allowed Kanye to keep 100% ownership in Yeezy - making Adidas the exclusive producer, marketer, and distributer of all Yeezy shoes. In addition, Kanye would be given a 15% royalty on all wholesale plus a yearly marketing fee. Considering Michael Jordan is rumored to get closer to a 5% royalty fee, the offer was unprecedented. Kanye accepted and became an Adidas partner (Source).

In the years since, the Yeezy & Adidas partnership has flourished.

Officially debuting in February 2015, the brand launch party was pushed out by celebrities like Rihanna, Diddy, and Kim Kardashian to their hundreds of millions of social media followers. More recently, the collaboration did a reported $1.5 billion in sales during 2019, a 50% increase over the previous year. For context, the Jordan brand does a reported $3 billion in annual sales for Nike (Source).

Here’s a look at how Kanye’s creativity and shoe design has evolved from his time at Nike to Adidas (Source):

(Image Source: Forbes)

Although deals of this nature typically provide no financial transparency, we’ve been given an inside look at the finances of Kanye West - as he fights Forbes to be listed with billionaire status.

Here are the highlights from the financial disclosures he provided Forbes (Source):

• Kanye valued his empire at $3.3 billion

• Forbes applied a haircut to most of his self-appraisals and settled on $1.3 billion

• Kanye received around $140M in royalties last year from Adidas

• That represents over 80% of his $170M income

• Kanye’s financials list assets of $17M in cash and $35M in stock

• The biggest items are $81M in “buildings and improvements” and $21M in land

• He has nearly $4M in vehicles and almost $300k in “livestock”

• Kanye has a pair of $14M Wyoming ranches, which span almost 10,000 acres

• Kanye has about $100M in debt between mortgages and other liabilities

Regardless of your feelings about Kanye’s public persona and political aspirations, he’s built an impressive empire centered around his shoe and apparel brand “Yeezy”.

Kanye bet on himself - leaving a $170 billion global brand for the unknown, getting a sweetheart deal, and maintaining 100% ownership of his company. It’s not everyday you see that, then again, Kanye is the perfect example of Aristotle’s famous quote - “no great mind has ever existed without a touch of madness”.

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Extra Credit

In July of 2019, Forbes reporter Zach O’Malley Greenburg sat down with Kanye West in his Calabasas home to discuss “the creative process behind his shoe line and his approach to business”.

In my opinion, it’s always worth listening to a billionaire give advice on building a business.

(Source: Forbes)

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