Adidas ends Yeezy brand production, partnership with Kanye ‘Ye’ West

Yahoo Finance's Akiko Fujita, Brad Smith, and Alexis Keenan discuss Adidas severing ties with Kanye West, potential legal entanglements and licensing, the revenue hit to the athletic apparel brand, and where Ye's brand goes from here.

Video transcript

AKIKO FUJITA: Adidas is ending its massive deal with Ye, the artist formerly known as Kanye West, following a series of anti-Semitic remarks. The shoemaker the latest high profile brand to cut ties with the artist, saying it will stop production of Yeezy-branded products immediately, as well as all payments to Ye and his companies.

Joining us to discuss the implications, we've got Brad Smith, as well as Alexis Keenan. And Brad, let's start with you, because we are trying to figure out what the financial hit is likely to be. I mean, you talk about Yeezy. I mean, Kanye-produced products have, what, been driving 8% to 10% of the revenue?

BRAD SMITH: Yeah, for Adidas, they're saying near term, this could be upwards of $250 million to their net income. But you also think about some of the tertiary dollars as well. We were discussing just last hour with Bernstein analyst Aneesha Sherman and the resale community as well. This could also take a hit in the near term. You think about companies like Stadium Goods, owned by a company FARFETCH, publicly traded FTCH, I believe.

And with all of that in mind and how so many of those companies have looked across the product lines that have been the most Hypebeast-esque, Yeezy has been squarely within the fold, same to the success of-- almost mirroring the success of how well Nike Dunks have done.

And so for a brand that has largely fallen out of favor and seen waning favor over a core consumer constituent in millennials and Gen Z recently, losing or having this type of instance that hits on the brand in concert with what's already taking place with the deterioration of the brand, could have a much longer term impact as well.

AKIKO FUJITA: There's been a lot of criticism about how long Adidas took to make this decision. I wonder if we have any idea about the financial hit they did take or they're likely to take. Not necessarily of the resell side that you're talking about, but you know, how many consumers said, look, I'm just not going to buy this based on his remarks?

BRAD SMITH: Well, his remarks-- let's just lay it out on the table. It was anti-Semitic. He had, even prior to that, gone on rants and wore t-shirts that were saying White Lives Matter and kind of-- and throwing, especially within the Black community, where Black Lives Matter, throwing that on its head, almost.

And so for a consumer group that you have cozied up to for so many years, to now go and do the exact opposite-- and what I was saying within our show this morning is, he has now kind of shifted his entire brand in this era of influencer economy and said, I'm going to pander into such a different direction that is hurtful to so many consumers out there and the population more broadly that, now, if you're going to continue that pander, you also have to be comfortable with knowing that brands are going to step away.

It's Adidas. It is JPMorgan. It is a company in CAA, the Creative Artists Agency. And there, you're seeing on the screen Gap, which he had had--

AKIKO FUJITA: Balenciaga.

BRAD SMITH: --the Yeezy partnership with, Balenciaga. And so this is more-- this is far more ranging than just the financial head of Adidas. It's all of those other companies as well that are going to see some type of impact in the near future.

AKIKO FUJITA: And Alexis, I know you've been looking at sort of the legal side of things, you know, who actually owns the rights to reproduce some of the things that Kanye designed. I mean, where does that stand right now? Because it was just, what, last week, a few weeks ago, where we heard Kanye coming out and saying, look, they can't drop me.

ALEXIS KEENAN: Right, and also demanding and posting on social media, expecting a $2 billion payout to terminate this deal. But look, I think we first need to put an umbrella on this situation to say, this is somebody who has outwardly expressed that they have mental illness since 2018. So these companies that are contracting with him as the sole owner of some of these brands, Yeezy in particular, they are contracting with a company whose chief is known to have expressed that he has bipolar.

So there's some knowingness going into this. But look, that statement that you read going into the segment here, with Adidas saying that after this review, they've decided to end production of the Yeezy-branded products-- not necessarily the sale of them right now. It doesn't sound exactly like they're committing to that. But also saying that they'll stop all payments to Ye and his companies, it kind of isn't a full blanket statement that they're ending it there, at least the way I read it.

Now, these contracts, they're usually-- in this case, this is a private contract. So we don't know what it says between Adidas and his company. But typically, they're licensing agreements where Ye is creating the designs. And then Adidas would own 100% of those designs. So all of the designs that would have been made under that contract, they would typically belong to Adidas. But I'll just caveat it and say, we haven't seen those actual words on that paper. We're not sure. These licenses, they can change hands. They can be sold. They can be assigned as well.

AKIKO FUJITA: Yeah, I mean, to your point about what he has said publicly about having bipolar, I mean, the whole conversation, I will say, just on a personal level, it's just a little uncomfortable to watch, right? I mean, not only the anti-Semitic comments that he's made, but you have seen a lot of these companies, to your point, sort of understanding the situation, but going into an agreement, knowing that there are still risks on the side.

And I wonder-- Brad or Alexis, both of you can weigh in on this-- I mean, what is-- where does his brand go, his personal brand go beyond this? You could argue he moves away from the public eye, he gets some help. Who knows what's going to transpire? But compared to what we have seen in the past, I mean, this feels like the damage is really great.

BRAD SMITH: Yeah, and this is where it's, if I may, the separation of a musician who has built up their brand on who they had been as a musician to what that actual brand has become as a result of the partnerships that moved forward and the millions, billions of dollars that were thrown around to make his brand even more appetizing to a range of consumers, whether that be a range of consumers in apparel and fashion, or whether that be in some of the other technological landscapes that he wants to operate in.

This is still a person that's trying to buy Parler, too. So his brand is clearly going in that direction right now with the commentary, hurtful as it is, has been. And so he is fully delving his brand fuller into that and even more full steam ahead into some of the hateful commentary that has been known to persist on a platform like that technologically.

AKIKO FUJITA: Well, and it runs counter, right, to the exact fan base that he built.

BRAD SMITH: Right, and counter to some of his own lyrics that he's put in songs earlier.

AKIKO FUJITA: Well, I mean, you're exactly right. When you go back and listen to some of his early albums, this is exactly what he railed against, and now he's become a part of that. So a story that, really, to your point, sort of covers not just the music industry, the fashion industry. It has wide ranging implications. But I know you'll both continue to watch it.