The Yeezy Brand Accounts For ~10% Of All Adidas Revenue

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Hey Friends,

Music producer, rapper, and fashion designer Kanye West, who legally changed his name to Ye last year, has faced heavy criticism and backlash over the last three weeks.

It started on October 3rd when he wore a shirt with the phrase “White Lives Matter” during Paris Fashion Week, and it has continued with antisemitic rhetoric on Twitter, Instagram, and several podcasts, including a now-deleted episode of Drink Champs.

As a result, Gap, Balenciaga, and Vogue severed ties with Ye, CAA dropped him as a client, and MRC Entertainment canceled a scheduled documentary project with him.

But nothing has been more (financially) impactful than Adidas’ decision.

On October 25th, Adidas announced that it was officially ending its relationship with Ye. The termination was effective immediately, and Adidas said the result would be a short-term negative impact of up to $246 million in 2022.

Here’s the complete statement:

Maybe Adidas was trying to downplay the impact to soften the blow to its stock, which is roughly flat since the announcement was made, but I don’t think this statement accurately reflects the true financial impact of this decision.

For example, the Yeezy line at Adidas reportedly accounted for $1.7 billion in annual revenue. That’s about 8% of their $21.2 billion in total revenue last year, and according to Darren Rovell, this is probably a $10 billion decision long-term.

“To put that in perspective, only one brand in shoes would cost more to stop and shut down: The Jordan Brand,” says Darren Rovell of the Action Network.

Of course, that doesn’t mean Adidas shouldn’t have done it.

The German-based company has been criticized for taking more than a week to announce the decision, but after Ye publically taunted them by saying, “I can say anti-Semitic things, and Adidas can't drop me,” they were left with no choice.

Remember, Adidas founders Adi and Rudolf Dassler were members of the Nazi party, and the company used its factory to make shoes for Nazi Youth and even shut down during the World Wars to help Germany build weapons.

The other interesting part is that Adidas made it clear they are “the sole owner of all design rights to existing products as well as previous and new colorways under the partnership.” So while Ye might own Yeezy, the Yeezy shoe designs are Adidas’ intellectual property.

But still, the impact of Ye’s actions on the sports landscape doesn’t stop at Adidas.

For example, Ye launched Donda Sports earlier this year—an off-the-field sports marketing and clothing brand—and he made headlines by signing NFL star Aaron Donald and NBA star Jaylen Brown. But both of those players have now left.

Furthermore, Ye has a private school in Los Angeles called Donda Academy. He recruited a few nationally-ranked basketball players, convincing them to move to Los Angeles for the chance at additional exposure on his team, and they even played at the Staples Center earlier this year. But the team was removed from the nationally acclaimed Scholastic Play-By-Play Classics tournament yesterday, and it’s unclear what further impact this will have on their season.

So I don’t know what will happen from here. But actions have consequences, and I just hope Adidas doesn’t have to fire thousands of employees (due to a ~10% drop in revenue), and high school kids don’t miss out on college scholarship opportunities.

Have a great day. I’ll talk to everyone tomorrow.

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