Adidas is one of the most recognisable brands in the world but its financial demise has rocked the sports world to the core.
Trouble started in October last year when the German giant ended its partnership with Kanye West – now known as Ye – over anti-Semitic outbursts he posted on social media.
The rapper’s Yeezy range had been highly lucrative and hugely popular with customers and gave Adidas a firm foothold in the US market where traditionally rival Nike has dominated. At the height of the brand’s peak a pair of Yeezy 500 Salt trainers were being traded for an astonishing £4,171.
His designs tapped into a younger generation of Americans who for the first time saw Adidas as ‘cool’ and ‘hip’ – something Nike cracked years earlier through endorsement deals with the likes of Chicago Bulls superstar Michael Jordan.
But so bad has the fallout been that on Wednesday the company posted a 70 per cent hit to annual profits and warned worse is set to come if it decides to ‘burn’ the £500m leftover Yeezy stock which can no longer be sold.
Adidas have been left in financial turmoil following an ill-fated tie-up with rapper Kanye West
The rapper’s recent controversial comments have led to an inability to sell their ‘Yeezy’ stock
Adidas CEO Bjorn Gulden attends the company’s annual news conference in Herzogenaurach on Wednesday where the sportswear brand revealed a 70 per cent hits to annual profits
The affair has been an embarrassment for Adidas, although industry analysts say issues at the company have been building up for years – adding that West was merely helping paper over the cracks.
These issues include declining sales in China – a key growth market for the sports industry – as well as a string of failed merger deals, such as the £2.2bn paid for Reebok in 2005, which has left Adidas with a number of legacy businesses that have little or no value.
The company’s other celebrity partnerships have failed to sizzle, in particular Beyonce’s Ivy Park fashion line which executives hoped would generate hundreds of millions of dollars in sales.
‘There is no doubt Kanye was propping up Adidas. The jury is out as to whether they can move on from this,’ said Mark Josefson, analyst at investment bank Pareto.
The fallout from the West saga will also be felt on the pitch, with Adidas likely to scale back on its huge marketing spend meaning team and player endorsement contracts could be slashed.
Adidas currently spends 12 per cent of annual sales – against 8 per cent at Nike – on marketing, something which many analysts do not believe is sustainable.
Its major contracts are with World Cup Winner Lionel Messi, Mohamed Salah at Liverpool and Damian Lillard of the Portland Trail Blazers as well as teams such as Manchester United, Bayern Munich and Juventus.
Pop artist Beyonce’s Ivy Park fashion line has failed to produce expected sales for Adidas
Adidas paid £2.2bn for Reebok in 2005 and they have made a string of failed merger deals
Adidas have been weak in marketing compared to rivals Nike who were sharp in using NFL player Colin Kaepernick to help promote their products
Josefson added: ‘Adidas will always sponsor the Manchester United’s and Bayern Munich’s but will they continue to endorse the lesser known teams? Who knows. It is a big question mark which needs answering this year.’
Player endorsements are a vital part of the industry but the feeling is that with Adidas in crisis Nike has stolen the initiative.
In recent years Nike have also been smarter in their marketing, backing players such as former NFL quarterback Colin Kaepernick who became famous for kneeling for the pre-game national anthem in protest at racial injustice in the United States.
Nike released an award winning advert in with the slogan ‘Believe in something. Even if it means sacrificing everything. Just do it.’
‘Nike is undoubtedly better at tapping into the zeitgeist than Adidas. Making your brand cool is a very difficult thing to do and Nike are experts,’ Josefson said. Other brands such as Under Armour and Puma have likewise upped their game, in the hugely competitive endorsement space.
The sports brand have a world record £75million-a-year deal with Manchester United
Adidas also have a £18million ‘lifetime’ boot deal with Paris Saint-Germain star Lionel Messi
Adidas branding was seen globally as Argentina won the World Cup in Qatar last year
But losing is not something Adidas is used to.
Founded in 1924 by Adi Dassler and his brother Rudolf in their small hometown in Bavaria the two men grew the company from the kitchen of their mother’s house into a sporting powerhouse.
Forever tarnished by Adi’s Nazi party membership, Adidas nevertheless created the shoes that helped power the African American athlete Jesse Owens to four gold medals under the gaze of Hitler at the 1936 Berlin Olympics.
But it was football rather than athletics that made the brand’s name as Franz Beckenbauer lead the Germans to victory in the 1974 World Cup wearing the iconic three stripes.
To this day Copa Mundial’s, World Cups and Predators are adorned by professionals and amateurs in every league in the world.
But amid the doom and gloom there is evidence that the company can turn itself around.
New chief executive Bjorn Gulden, who took over in January, engineered a spectacular turnaround at Puma.
On Wednesday he told investors: ‘2023 will be a transition year. Adidas has all the ingredients to be successful, but we need to put our focus back on our core product, consumers, retail partners, and athletes.’
African American athlete Jesse Owens took four gold medals at the 1936 Olympics in Germany
West Germany captain Franz Beckenbauer helped boost Adidas’s popularity further with a World Cup win on home soil in 1974
The predator football boot range launched in the 1990s was hugely successful with stars like David Beckham (pictured in 2005) helping lead the campaign
Rita Clifton former chairwoman of the marketing consultancy Interbrand added: ‘The Adidas brand has been one of the most valuable since its inception. It has a much more sustainable long term value than Kanye West.’
But investors remain sceptical and evidence shows that by 2025 Nike could be more than double the size of its German rival with sales of nearly £80bn, compared with roughly £30bn at Adidas.
This is reflected in the company’s share prices. Over the past five years Nike shares have risen 81 per cent, whereas Adidas has tumbled 24 per cent.
‘A whole Adidas brand reset is probably needed,’ Citi analyst Thomas Chauvet told investors.