Anti-Semitism Scandals Are Costing Adidas and Nike

After a string of anti-Semitic remarks led Adidas to sever ties with Kanye West and stop producing Yeezy sneakers and apparel, the German sportswear giant now faces a $2 billion shortfall. A similar controversy is afflicting Nike with Kyrie Irving.

Kanye West in Villepinte, France. Photography by Jacopo M. Raule/Getty Images/Balenciaga

For major brands with celebrity deals, the past couple of months must have been eye-opening. Ye, the rapper and artist formerly known as Kanye West, lost multiple brand endorsement deals after making a string of anti-Semitic remarks and wearing a “White Lives Matter” shirt, sparking widespread outrage. Gap and Balenciaga quickly terminated their partnerships with West; Vogue vowed to never work with him again. Conspicuously absent from the conversation was Adidas, which struck a lucrative deal for West to create Yeezy-branded sneakers and apparel for the sportswear giant back in 2013. 

Though Adidas ultimately severed ties with West and stopped selling its Yeezy line one week into the fallout, many complained the brand didn’t act fast enough. That’s likely because the C-suite was evaluating the potential financial fallout of terminating its most lucrative celebrity partner. Adidas has become heavily dependent on Yeezy, which analysts estimate ballooned to $2 billion in annual sales, or roughly 8 percent of revenue and 40 percent of profit. Adidas is expected to tell investors how it plans to alleviate the financial shortfall on an earnings call today, and rebounding will likely become one of incoming CEO Bjorn Gulden’s biggest challenges.

“The saga of Ye, not just with Adidas but with brands like Gap and Balenciaga, underlines the importance of vetting celebrities thoroughly and avoiding those who are overly controversial or unstable,” Neil Saunders, an analyst at GlobalData, said in a statement. “Companies or brands that fail to heed this will get stung, especially if they become overly reliant on a difficult personality to drive their business.” 

A Yeezy sneaker for Adidas. Image via Shutterstock

Adidas isn’t the first apparel brand grappling with botched endorsements, and it won’t be the last. But few companies have put all their eggs in one basket by entrusting an unaccountable public figure as designer and endorser of a billion-dollar product line. The German brand’s main competitor, Nike, recently suspended a shoe line with basketball star Kyrie Irving after he refused to disavow his endorsement of an alleged anti-Semitic film, Hebrews to Negroes: Wake Up Black America, on social media. The Brooklyn Nets player has since been suspended and apologized on Instagram—one of six apparent conditions he must meet in order to return to the team. And though Nike’s former executive chairman Mark Parker named Irving’s shoe line as a key component of the company’s basketball future, it pales in comparison to the company’s biggest asset, Michael Jordan, whose namesake line generates more than $5 billion in annual revenue.

Celebrity endorsements are high risk, high reward. According to a study conducted by the Association of National Advertisers, 75 percent of companies rely on influencer marketing—a crucial strategy to reach millennial and Gen Z audiences who avidly follow social media celebrities as trust in traditional media has dipped. But these deals can backfire if spokespeople are engulfed in scandal. “The problem is, if you go down the rabbit hole, and you accept, and accept, and accept, and you look the other way, then you are, in a sense, co-signing on the behavior implicitly,” said Americus Reed, a marketing professor at the University of Pennsylvania’s Wharton School about Adidas’s decision to sever ties with West.

The Kyrie 5 for Nike. Image courtesy of Nike

Still, it’s rare to see partnerships unravel with such furor. Because Adidas took its time to evaluate its financial situation before formally severing ties with West, experts predict its reputation will likely suffer. The internet was also quick to point out that Adidas’s two co-founders, Adolf and Rudolf Dassler, were both members of the Nazi Party, despite the brand having taken steps to distance itself from that troubling legacy over the years. 

Stefan Hock, an assistant professor of marketing at the University of Connecticut who has studied brands’ responses to backlash around celebrity endorsers, has found the timing of a company’s reaction can impact its stock price. Gulden remains unfazed, and hinted that more such partnerships are on the horizon for Adidas: “Every time you sign a partner, be it an athlete or an influencer or a rapper, it’s an evaluation of positives and negatives and I don’t think this event will change that.” 

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