Adidas is among the most well-known brands in the world, but its financial collapse has shocked the sports industry to its very core.
As a result of Ye’s anti-Semitic outbursts on social media, the German company severed its collaboration with Kanye West in October of last year.
As a result of the rapper’s wildly successful and well-liked Yeezy line, Adidas gained a significant footing in the US market, which has historically been dominated by competitor Nike.
An astounding £4,171 was being paid for a pair of Yeezy 500 Salt sneakers at the height of the brand’s popularity.
His creations appealed to a younger generation of Americans who, for the first time, associated “cool” and “hip” with Adidas. Years previously, Nike had achieved the same feat thanks to endorsement partnerships with athletes like Chicago Bulls star Michael Jordon.
Currently, the effects have been so severe for Adidas that the company announced a 70% decline in annual profits on Wednesday and issued a warning that things will only get worse if it decides to “burn” the £500 million in unsold Yeezy stock.
Business analysts claim problems at the company have been accumulating for years and that West was only helping to cover the gaps, which even makes the scandal more embarrassing for Adidas.
These problems include dwindling sales in China, a significant market for the sports sector’s growth, as well as a run of disastrous merger transactions, such as the £2.2 billion spent for Reebok in 2005, which left Adidas with a number of legacy businesses that were of little or no value.
Other celebrity endorsements for the brand haven’t been a hit, particularly Beyonce’s Ivy Park clothing line, which management had thought would bring in hundreds of millions of dollars in sales.
‘There is no doubt Kanye was propping up Adidas. The jury is out as to whether they can move on from this,’ said Mark Josefson, a research analyst at Pareto.
Adidas is likely to reduce its significant marketing expenditure, which could result in reduced club and player endorsement contracts as a result of the West saga’s effects.
Adidas presently spends 12% of annual sales on marketing, compared to 8% at Nike, which many analysts do not think is sustainable.
Together with teams like Manchester United, Bayern Munich, and Juventus, it has huge contracts with World Cup winner Lionel Messi, Mohamed Salah of Liverpool, Damian Lillard of the Portland Trail Blazers, and others.
Josefson continued: ‘Adidas will always sponsor the Manchester United’s and Bayern Munich’s but will they continue to endorse the lesser known teams? Who knows. It is a big question mark which needs answering this year.’
Players endorsements are a crucial component of the business, but with Adidas in trouble, it seems like Nike has taken the lead.
Nike has improved its marketing strategies in recent years, supporting athletes like former NFL quarterback Colin Kaepernick, who gained notoriety for kneeling during the playing of the national anthem to denounce racial inequality in the country.
Rita Clifton, a former chair of the advertising agency Interbrand, continued: ‘The Adidas brand has been one of the most valuable since its inception. It has a much more sustainable long term value than Kanye West.‘
Investors, however, are still pessimistic, despite evidence that suggests Nike might more than quadruple the size of its German rival by 2025, with sales of about £80 billion compared to Adidas’s roughly £30 billion.
The share prices of the corporation reflect this. Adidas shares have fallen 24% over the last five years, whereas Nike shares have increased 81%.
Adidas
Adidas AG is a German multinational firm that creates and produces footwear, apparel, and accessories. It was established in Herzogenaurach, Bavaria.
After Nike, it is the second-largest sportswear producer in the world and the biggest in Europe.
It serves as the parent company for both the Austrian fitness technology company Runtastic and the Adidas Group, which owns an 8.33% share in the football team Bayern München.
Adidas reported €21.915 billion in revenue for the previous year.
Adolf Dassler founded the business in his mother’s home, and in 1924, his older brother Rudolf joined him. The business was then known as Gebrüder Dassler Schuhfabrik (“Dassler Brothers Shoe Factory”).
Kanye West
West, who was born in Georgia and reared in Chicago, rose to fame as a producer for Roc-A-Fella Records in the early 2000s. He did this by creating the “chipmunk soul” sampling technique and releasing singles for a number of singers.
He released his debut studio album, The College Dropout (2004), to critical and financial acclaim with the goal of forging a solo career as a rapper. Later that year, he launched the record company GOOD Music.
In 2021, West’s net worth reached $1.8 billion.
Forbes reported that in October 2022, his net worth had decreased to $400 million, in large part as a result of Adidas ending their collaboration after a string of outspoken antisemitic comments.
With “personal reasons,” West requested in August 2021 to have his legal name changed from “Kanye Omari West” to “Ye,” with no middle or last name.
