Adidas Hits Back Against Lawsuit Alleging it Misled Shareholders About Yeezy Risks

Adidas’ ill-fated relationship with mercurial artist Kanye West remains a thorn in the brand’s side nearly two years after the partners cut ties.

The German athleticwear giant has asked a judge to dismiss a 2023 lawsuit filed by shareholders who claim that Adidas should have disclosed the risks West’s behavior posed to the health of the business.

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Last May, HRSA-ILA Funds filed a class-action complaint on behalf of itself and other Adidas shareholders, suing ex-CEO Kasper Rørsted and chief financial officer Harm Ohlmeyer for making “false and misleading statements” that “artificially inflated” Adidas’ stock price, allegedly violating federal securities laws.

The filing claimed that Adidas was fully aware of the Yeezy creative director’s problematic behavior years before it came to a head and forced the company to terminate its partnership with West in 2022. During the highly publicized uncoupling, in which the brand endured damaging mudslinging from West, questions about the fate of a glut of unsold Yeezy inventory arose.

Executives told investors that the company could stand to lose $1.32 billion if the stock went unsold, revealing that ending the Yeezy partnership cost Adidas $660 million in the fourth quarter of 2022.

Throughout the spring and summer of 2023, the brand sold off a chunk of the existing merchandise through two targeted drops. The releases boosted net sales by about $808.7 million in 2023, but “the discontinuation of the Yeezy business had a negative effect on the top-line development during the year,” Adidas said Jan. 31, representing a drag of around $539.17 million on the year-over-year comparison.

The brand aims to sell through the remainder “at least at cost” in 2024, instead of writing it off as it had previously explored, it said in its full-year report.

On the back of the earnings release, Adidas on Feb. 2 called the shareholder lawsuit “a misguided attempt to transform the dramatic and unfortunate end of the commercial partnership” into a securities-fraud claim, characterizing the legal action as “opportunistic” on the part of HRSA-ILA Funds and the others involved. The group argued that it made “robust disclosures” of factors that could hinder performance, like risks associated with partners, personnel, media and stakeholders.

Adidas wrote that it did take West’s public comments and behavior seriously for years leading up to the termination of the relationship. Company leadership met in 2018—after West told TMZ journalists that Black Americans’ 400-year enslavement “sounds like a choice”—to determine “whether and how the Company should proceed with the partnership.” For years following those discussions, the Yeezy line was a massive boon to the Adidas brand, and the company argued that it could not have foreseen the circumstances that would necessitate West’s ousting in 2022.

Adidas said HRSA-ILA’s lawsuit fell short of proving that the company made false or misleading statements “either intentionally or with deliberate recklessness,” and that the suit’s claims “do not give rise to a strong inference of fraudulent intent.” In fact, the group stated that “the opposing inference—adidas did not know in advance that Ye would take actions requiring the termination of the adidas-Yeezy partnership—is far more compelling.”

HRSA-ILA also “fails to plead loss causation,” the statement said, meaning that the decline in Adidas stock could not be sufficiently linked to a “revelation of fraudulent activity” by the company. Adidas concluded by urging the judge to dismiss the lawsuit immediately.