Dive Brief:

• The Adidas Group and two of its top executives are facing a legal complaint from investors, claiming the German company knew of the risks associated with its Yeezy partnership with rapper Ye, formerly known as Kanye West, before it was widely known, causing decline in the market value of its shares.
• Investors are seeking to recover damages from Adidas, claiming it violated securities law when it didn’t disclose to shareholders known risks associated with the Ye partnership. Over the life of the partnership, Ye made various statements about slavery, politics and other racial issues, according to the complaint. Some of these came to a head in 2022 when he made overtly anti-Semetic remarks, and Adidas cut ties with the rapper, which cost about $632 million, according to Reuters. 
• Despite these challenges, Adidas announced a heavy push into the North American market, with Rupert Campbell, North America president for Adidas telling the Wall Street Journal recently, “We want to double down on all of the things that are U.S.-centric, particularly around sport."

Dive Insight:

The class-action complaint, filed Friday in the United States Oregon District Court, names Kasper Rørsted, former Adidas CEO, and Harm Ohlmeyer, current CFO. Adidas didn’t immediately respond to a request for comment Monday. 

The complaint alleges that in the Business Partner Risks section of Adidas’s 2018 annual report, the company generally alluded to risks involving individuals Adidas partnered with “rather than stating that the Company had actually considered ending the Partnership as a result of West’s personal behavior, or how the Company’s reputation might be affected if his behavior as it related to the Company were to become public.”

The 2019, 2020 and 2021 annual reports also didn’t include specific reference to the Ye partnership, according to the complaint. A 2022 report from the Wall Street Journal showed the company’s top leadership discussed risks associated with West as far back as 2018. Following the WSJ report, the complaint states that the company’s stock fell.

Following the termination of its partnership, Adidas warned investors it could experience a loss if it failed to sell its inventory of Yeezy shoes. At the time, the company warned that if it couldn’t repurpose Yeezy inventory it would lower the company’s operating profit by 500 million pounds, or $624 million each year. These events caused the stock to fall again, the complaint states.

Adidas inked the partnership with Ye in 2013, which stipulated the rapper would endorse and help design some of the company’s shoes. The partnership deepened in 2016 when Ye licensed his Yeezy trademark to Adidas for 15% of sales, according to the complaint.

Adidas now wants to focus more on the U.S. sports market, but Campbell told the WSJ the brand would still continue celebrity partnerships. That said, it recently announced it would end its collaboration with Beyonce on Ivy Park, according to a report from the Hollywood Reporter.