As you no doubt know, last fall, Adidas severed its partnership with Ye — the rapper formerly known as Kanye West. The sudden breakup occurred after the rapper made a number of very public hateful, offensive, and antisemitic remarks. Oh, and he also personally criticized several Adidas executives. Fast forward to the present and while Adidas has begun to sell-off its billion dollar stash of unsold Yeezys, the two sides are still engaged in a ferocious legal battle. According to Adidas, Kanye misappropriated the majority a $100 million marketing fund, reportedly using the money for "unauthorized purposes." Now, it's trying to get back $75 million from the rapper.
Per Adidas, the company sent $50 million to a Yeezy bank account in Wyoming, the former home of Ye. Adidas also pushed another $25 million into Yeezy's New York-based JPMorgan Chase account. All of that money was supposed to go to an annual marketing fund that would ultimately deploy a total of $100 million. According to Adidas, the $75 million it sent was immediately moved to another account that helped fund other Yeezy ventures
That's in violation of the agreement of the former partnership, and it could cost Ye a ton of money — unless he can get creative.
$200 Million $100 Million
Ye and Adidas began their partnership in 2016. For every shoe Adidas sold, Ye earned a royalty. At his peak, he was earning over $200 million per year in royalties alone. In 2020 and 2021, Yeezy sales accounted for 10% of Adidas' annual gross revenue.
But that's not all.
On top of his shoe royalties, Kanye's deal entitled him to a $100 million annual marketing slush fund that could be used at his discretion. The fund would be paid in quarterly installments of $25 million. The funds were meant to be "restricted to marketing purposes," but what defined a marketing purpose is a bit vague.
For example, in 2019 Kanye told Adidas he spent $50 million of the fund putting on his "Sunday Service" gospel choir tour, and the company didn't seem to blink.
In May of 2023 Adidas sought a court order which would have required Kanye to hand over $75 million worth of funds it claims he misappropriated or simply was no longer able to use for valid marketing purposes. In its May 2023 filing, Adidas claimed there was urgency to have the $75 million returned because it had heard rumors about the rapper's solvency.
Adidas claims it paid $75 million in 2022 in three installments. It also claims that Kanye immediately transferred the funds to a separate account where it was commingled with other funds, violating the terms of their deal.
Adidas is seeking the full $75 million plus unspecified monetary damages, but they'll knock some money off the bill if Yeezy can demonstrate some of the funds were used to legitimately market products through the partnership.
Adding to the legal battle: Ye claims the Yeezy shoe designs are his and that Adidas has copied those designs to sell at lower prices. Adidas alleges it owns all of the shoe designs. Adidas is also being sued by shareholders, who believe the company didn't disclose just how bad the issues were with Ye.
However this legal battle turns out, the split with Ye has been devastating for Adidas. The company still has hundreds of millions of dollars worth of leftover Yeezy shoes and is hoping to sell as much as it can while donating some proceeds to charitable organizations that were also impacted by Ye's words and actions. It turns out that people still want to buy Yeezys — in March, Adidas told investors it was expecting an operational loss of $775.1 million but updated that projection in July to a $498.3 million loss after strong Yeezy sales.
Still, Adidas is on track for its first operational loss in 31 years. Somewhere, we imagine Ye is saying, "Don't act like I never told ya."