Investor Alleges Adidas’ Handling of Kanye West Partnership Sank Stock Prices

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Adidas faces a proposed class action that alleges the apparel company’s failure to take “meaningful precautionary measures” before and in response to antisemitic comments from Ye, formerly Kanye West, caused more than one stock-price drop, damaging investors financially.

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The 26-page lawsuit claims that certain public statements made by Adidas between May 3, 2018 and February 21, 2023 were materially false and/or misleading in that the sports and lifestyle brand failed to disclose antisemitic comments from Ye made in front of Adidas staff and that Adidas was aware of his increasingly offensive and damaging behavior. Moreover, Adidas failed to get in front of the controversy so as to “limit negative financial exposure” in the event the partnership with the rapper, in place since November 2013, were to end due to his behavior, the suit says. 

Further, the case alleges Oregon-headquartered Adidas “overstated the risk mitigation measures it took” with regard to its popular Yeezy line of shoes in the event the company ended its partnership with Ye and could not sell its existing stock.  

Per the case, Adidas parted ways with Ye, immediately halting production of all Yeezy-brand products, on October 25, 2022 after a string of “unacceptable, hateful and dangerous” comments and actions. 

“Adidas was aware of [West’s] behavior and failed to warn investors that it was aware of that behavior, and had considered ending the partnership as a result,” the suit summarizes. 

On November 28, 2022, the price of Adidas stock sank after the Wall Street Journal published a day prior an article entitled “Adidas Top Executives Discussed Risk of Staff’s ‘Direct Exposure’ to Kanye West Years Ago,” the case states. The report, the suit says, revealed that Adidas leadership discussed as far back as 2018 fears that Ye could “blow up at any moment,” and shared a number of accounts of disturbing behavior from West that included comments about slavery, wearing a “white lives matter” t-shirt to a fashion show and posting antisemitic comments on social media.

Moreover, the WSJ article mentioned “tensions behind the scenes” due to West “berating” and making anti-Jewish comments in front of Adidas staff, including his apparent desire to name an album after Adolf Hitler, the lawsuit states. 

On February 9, 2023, the defendant warned investors that it could shift from a profit to a loss should it fail to sell its inventory of Yeezy shoes in the wake of the end of its partnership with Ye, the case continues. Per the suit, failure to sell the stock of Yeezy shoes would lower Adidas’ revenue by around $1.29 billion.

Moreover, Adidas disclosed that should it "irrevocably decide not to repurpose any of the existing Yeezy product going forward," this would result in a write-off of all existing Yeezy inventory, which would lower Adidas' operating profit by an additional 500 million euros this year, the lawsuit states. Should the foregoing materialize, the company warned, Adidas would expect to report an operating loss of 700 million euros in 2023, according to the case.

Upon this news, the price of Adidas stock sank once again, more precipitously than it did last November, the complaint relays. 

Per the lawsuit, Adidas’ stock price sank once more when, on February 21, S&P Global announced that it would downgrade the company due to its negative financial outlook, which the financial giant accredited in part to the defendant’s uphill battle in getting rid of its existing stock of Yeezy products. 

“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s common shares, Plaintiff and other Class members have suffered significant losses and damages,” the case alleges. 

According to the complaint, West licensed his trademark “Yeezy” to Adidas in exchange for a 15-percent cut of sales. Though its collaboration with Ye had a positive impact on the company, with sales of Yeezy shoes surpassing $1 billion by 2019, the rapper began to make overtly antisemitic and other racially disparaging remarks in the fall of 2022, the suit explains. 

By late October, Adidas was facing potential boycotts amid its failure to end the partnership with West, the case adds. In the run-up to last fall, Adidas “stuck by West” despite his increasingly concerning and offensive behavior, the filing relays. 

The lawsuit looks to cover all persons and entities who acquired publicly traded Adidas securities between May 3, 2018 and February 21, 2023. 

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