adidas AG (OTCQX:ADDYY), the clothing giant, is dropping more Yeezy products in August, as the group continues to manage the damage from its failed partnership with controversial rapper Kanye West.
Terminating the rapper's contract last October, Adidas initially said it would be taking a €250 million hit in its fourth quarter after being left with a horde of inventory, the potential write-down figure even reached estimates of €500 million during 2023.
At the time investors would have thought the end of the deal, which came after West made antisemitic comments on social media, would have posed significant issues for the fashion firm.
However, Adidas found a smart way to manoeuvre away from the issue, offering quick-fire sales, also known as drops, of the Yeezy stock, with €110 million of the proceeds being donated to anti-hate charities – not before helping improve top and bottom-line earnings, of course.
“This is much better than destroying and writing off the inventory and allows us to make substantial donations. And it is of course also helping both our cash flow and general financial strength,” Bjorn Gulden, Adidas’s chief executive officer said in a company statement.
Bringing in US$565 million from selling around four million pairs of Yeezy shoes, Adidas quickly revised its operating loss forecast from €700 million to €450 million in July and on Thursday it said revenues would only decline at a mid-single-digit rate rather than by a high-single-digit.
Yeezy shoes Source: Hollywood Reporter
A second drop of Yeezy inventory is underway and Adidas reckons, should it be successful, it will be able to improve company financials further.
The result of the drop is currently unknown and therefore it has not been factored into the company’s top or bottom-line outlook, meaning that investors can likely expect more news of profits and revenue guidance improving, and it could potentially lead to the group breaking even for the financial year.
Investing celebs
Brand deals with celebrities can often be a chance for a company to access untapped markets, drive in new waves of customers, and therefore grow sales – especially if you incentivise them with shares.
One big success story is Guild Esports PLC (LSE:GILD, OTCQB:GULDF), which is co-owned by David Beckham in return for the use of his image rights – the former England international has a history of launching successful business ventures, taking control of Inter Miami FC .
The power of celebrity investments has not been better showcased than by actors Ryan Reynolds and Rob McElhenney, who bought Wrexham AFC for £2 million in 2020.
Losses of £2.9 million occurred in the twelve months to June 2022 and The R.R. McReynolds Company LLC has introduced a loan upwards of £3.6 million, aimed at helping purchase the club’s ground.
Despite this, the club was promoted last season, and the two celebrities' experience has been made into a Disney + documentary.
Continuing to grow in popularity, turnover jumped by 404% in 2022, driven by strong matchday sales which rose to £2.6 million.
Wrexham's owners Source: Essentially Sports
American sports stars have also followed suit.
Tom Brady, considered the greatest NFL player ever, has become a minority shareholder in Birmingham City, fellow sports star JJ Watt owns part of Burnley FC and Michael B Jordan has holdings in Bournemouth FC.
Even golfers Jordan Spieth and Justin Thomas as well as NBA star Russell Westbrook own minority stakes in Leeds United.
When it goes wrong
Not everything is as clear cut as offering a celebrity a stake or a one-off payment to endorse your product or service – tell Adidas about it.
Bud Light producer AB InBev has been grappling with a celebrity endorsement gone wrong for a few months now, after the US beer featured a trans influencer, Dylan Mulvaney, in one of its adverts.
Dylan Mulvaney advertising Bud Light Source: Financial Times
Sending anti-trans activists into a tizzy, sales of the drink were truly dented when Bud Light failed to properly stand up for Mulvaney, in turn, angering both sides of the fence.
Losing its number-one spot as America’s most popular beer, albeit to fellow AB InBev brand Modelo, profits at the brewer have faltered, slipping by close to 80% in the second quarter.
Problems don’t just arise when there is a backlash on the celebrity's side, sometimes it is the business putting the brand ambassador in hot water.
FTX Source: Reuters
In November, crypto-currency platform FTX collapsed and tarnished with it the reputation of celebrity endorsers including basketball player Steph Curry, comedian Larry David and current Birmingham City minority owner Tom Brady.
Having featured in several adverts for the disgraced company, the celebrities quickly had lawsuits launched against them, with Brady being sued by an investor who claimed he lost US$30,000 because of the NFL star's endorsement.