Adidas expects to lose $246 million in profit by the end of the year after severing ties with Ye, formerly known as Kanye West, the musician and designer.
Because of his “unacceptable, hateful, and dangerous” words and actions, the German sportswear business said on Tuesday that it had stopped its cooperation with Ye, including the manufacture of Yeezy-branded items and the cessation of all payments to Ye and his enterprises.
Their contract was due to end 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.
In 2021, the firm declared a net profit of 1.49 billion euros ($1.5 billion).
According to Baird analysts, Yeezy produced around $1.7 billion yearly sales for Adidas. This would have amounted to around 8% of Adidas’ total sales of approximately $21.2 billion last year.
David Swartz, an analyst who covers Adidas, estimated that the Yeezy line brought in between $1.5 billion and $2 billion each year.
Adidas previously stated that their work with Yeezy is “is one of the most successful collaborations in our industry’s history.”
Baird reduced its fourth-quarter sales expectations for Adidas by 8%, assuming that less than 40% of the money that would otherwise be spent on Yeezy is still spent on other Adidas items.
According to Baird analysts, Yeezy had an operating margin of more over 30% due to its high price points, limited discounts and promotions, and high share of direct-to-consumer sales.
Adidas stated on Tuesday that it was the “sole owner” of all design rights to existing Yeezy items and past and new hues created as part of the collaboration. According to the company, more details will be provided at the business’s third-quarter earnings release on November 9.
When Ye’s collaboration with Adidas was initially negotiated, his design business Yeezy received a 15% royalty on wholesale earnings. According to a paper published by UBS Group, the Yeezy firm generated $191 million in royalties from the Adidas partnership in 2020.
Based on his estimations of Yeezy’s profits, Swartz calculated that Yeezy might get a 10% royalty charge, which would amount to between $150 million and $200 million each year.
According to Forbes, the loss of the relationship would reduce Ye’s net worth from $1.9 billion to $400 million.