From 'Yeezus' to lawsuits: Adidas faces legal heat for Kanye West partnership fallout

Tuesday 02 May 2023

Adidas is currently facing a class-action lawsuit from investors who allege that the company was aware of rapper Ye's offensive remarks and harmful behaviour, which caused harm to the company, years before ending its partnership with him. Ye, formerly known as Kanye West, was cut off by the German sports brand in late October following his antisemitic comments on social media and in interviews. Adidas stated that it does not tolerate hate speech and called Ye's remarks and actions unacceptable and dangerous.

Before Adidas' decision, Ye wore a shirt with the slogan "White Lives Matter" at Paris Fashion Week, which the Anti-Defamation League classifies as a white supremacist phrase that originated as a racist response to the Black Lives Matter movement. The current lawsuit, filed in US District Court in Oregon, claims that Adidas was aware of Ye's problematic behaviour for some time, citing incidents such as 2018 comments where he suggested slavery was a choice and reports of him making antisemitic statements in front of Adidas staff.

The lawsuit represents people who bought Adidas securities between May 3, 2018, and February 21, 2023, and accuses Adidas, its former CEO Kasper Rørsted, and CFO Harm Ohlmeyer of being aware of or recklessly disregarding false or misleading statements surrounding the partnership with Ye. Ye is not listed as a defendant in the suit. The suit alleges that Adidas failed to take precautionary measures to limit financial losses if the Ye partnership were to end and cites a Wall Street Journal article from November, which reported that executives, including Rørsted, had discussions dating back to 2018 about the risks of Ye's actions and the possibility of cutting ties with the artist. The complaint also points to annual company reports from 2018 through 2021, which the suit says failed to disclose risks related to Adidas' partnership with Ye.

Adidas has rejected the allegations made in the suit and said that it will take necessary measures to vigorously defend itself against them. The suit seeks unspecified damages, the payment of legal fees, and further relief as the Court may deem just and proper. During his collaboration with Adidas, Ye designed the widely successful Yeezy line, and by 2019, sales of Yeezy shoes surpassed NZ$1.6 billion. Since cutting ties with Ye, Adidas has lost hundreds of millions of dollars, with the partnership's ending costing NZ$1 billion in lost sales in the last three months of 2022, leading the company to a net loss of NZ$890 million. This decline, also attributed to higher supply costs and slumping revenue in China, contrasts with a profit of NZ$379 million in the fourth quarter of 2021.

More losses could be ahead, especially as the company struggles with what to do with the existing Yeezy inventory. In March, the company forecasted a NZ$890 million hit to 2023 profit earnings if it decides not to repurpose the remaining Yeezy products in stock, predicting a 2023 operating loss of NZ$1.2 billion.