Adidas expects to lose $246 million in profit this year after cutting ties with Kanye West
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Adidas expects to lose $246 million in profit by the end of the year after cutting ties with Ye, the rapper and designer formerly known as Kanye West.
CONSTELLATION BRANDS, INC.
The Germany sportswear company said Tuesday that it had ended its partnership with Ye, including ending production of Yeezy-branded products and stopping all payments to Ye and his companies, because of his “unacceptable, hateful and dangerous” comments and actions.
Their agreement was set to expire in 2026.
“This is expected to have a short-term negative impact of up to €250 million on the company’s net income in 2022 given the high seasonality of the fourth quarter,” Adidas said.
The company reported net profit of 1.49 billion euros ($1.5 billion) in 2021.
Analysts from Baird estimated that Yeezy generated around $1.7 billion in annual revenues for Adidas. This would have been around 8% of Adidas’ total revenues of around $21.2 billion last year.
David Swartz, an analyst who covers Adidas for Morningstar, similarly estimated that the Yeezy line brought in between $1.5 billion and $2 billion per year.
An Adidas spokesperson had previously said that its partnership with Yeezy “is one of the most successful collaborations in our industry’s history.”
Baird said it was reducing its fourth-quarter sales estimates for Adidas by 8%, based on the assumption that less than 40% of the money that would otherwise be spent on Yeezy is still spent on other products at Adidas.
Yeezy had an operating margin of over 30%, Baird analysts estimated, because of its high price points, few discounts and promotions, and large proportion of direct-to-consumer sales.
Adidas said Tuesday that it was the “sole owner” of all design rights to existing Yeezy products as well as previous and new colorways under the partnership. More information will be given at the company’s third-quarter earnings announcement on November 9, it said.
Forbes reported that when Ye’s partnership with Adidas was first drawn up, his design company Yeezy got a 15% royalty on wholesale revenue. Bloomberg reported that the Yeezy business made $191 million in royalties from the Adidas deal in 2020, citing a document prepared by UBS Group.
Swartz estimated that Yeezy might get a 10% royalty fee, which would be between $150 million and $200 million per year based on his estimates of Yeezy’s revenues.
Forbes estimates that the loss of the partnership would tank Ye’s net worth down from $1.9 billion to $400 million.