Adidas is facing a class action lawsuit filed by shareholders who claim the sportswear brand knew about Kanye West's problematic behavior years before ending their partnership over his antisemitic comments. The German sportswear giant, experienced a significant decline in its stock prices after dropping the Yeezy brand. The company severed ties with rapper and fashion designer Ye, formerly known as Kanye West, in October following his antisemitic remarks on social media.
This decision had a considerable impact on Adidas' financial performance and stock prices. The company's stock fell by 45% since the beginning of the year, with an 11.5% drop to $138.50 a share on February 10, 2023, after Adidas issued a warning about potential revenue loss. Yeezy accounted for approximately 10% of Adidas' annual revenue last year, and terminating the deal resulted in a $246 million hit to its bottom line.
Adidas warned that it could lose around $1.3 billion in revenue in 2023 if it is unable to sell its existing Yeezy inventory, and operating profit would fall by about $535 million. The company also forecast one-off costs of up to 200 million euros, leaving Adidas' worst-case scenario for the year as a 700 million euro loss for 2023. Adidas CEO Bjørn Gulden acknowledged the company's underperformance, stating, "The numbers speak for themselves. We are currently not performing the way we should." In 2022, Adidas' revenues increased by only 1%, while operating profit dropped from almost 2 billion euros in 2021 to 669 million euros in 2022.
The shareholders allege that Adidas failed to mitigate their financial losses or take precautionary measures to minimize their exposure, which led to a sharp decline in the company's stock after the Yeezy brand was dropped.
The lawsuit accuses former Adidas CEO Kasper Rorsted and CFO Harm Ohlmeyer of either intending to deceive investors or acting with reckless disregard for the truth by failing to disclose issues between the company and Kanye West, now known as Ye. It alleges that Adidas knew about Ye's behavior and discussed the risk of his actions, but did not warn investors in a series of annual reports.
Adidas' partnership with Ye began in 2013, and the first Yeezys were released in 2015. The shoes became extremely popular, with sales reaching over $1 billion by 2019. However, Ye's controversial remarks about slavery in 2018 raised concerns among employees and executives. Despite this, Adidas continued its partnership with Ye until October last year when they cut ties due to his antisemitic comments.
Following the end of the partnership, Adidas experienced a net loss of 513 million euros ($540 million) at the end of last year. The company has since launched an independent investigation into reports of a toxic environment created by Ye at the company. In response to the lawsuit, Adidas stated that they "outright reject these unfounded claims" and will vigorously defend themselves against them.
The class action lawsuit covers anyone who bought Adidas stock between May 3, 2018, and 2023. The decision to drop the Yeezy brand has undoubtedly affected Adidas' stock prices and financial performance. As the legal battle unfolds, it remains to be seen how this will impact Adidas and its shareholders in the long run.
