- Ye, formerly Kanye West, stood by his antisemitic rants on social media.
- Many sponsors have severed ties with the musician as a result.
- Most notably, Adidas is stopping production of the popular Yeezy line, which could mean losing out on millions in sales.
When a brand is tied to negative headlines, the expectation is that sales will suffer. At the very least, a brand tied to bad press often has to make significant changes to regain the goodwill of shoppers. Worse still, companies can face a boycott of their goods.
In any case, the marketplace will not be kind to companies that get caught up with racist behavior — especially if the company is unwilling or unable to make a change.
Let’s explore how the latest celebrity rants are hurting sponsors.
So what’s happening with Kanye?
Kanye West (also known as Ye) isn’t new to the limelight, but his latest round of headlines is unquestionably bad press. The musician-turned-fashion designer made antisemitic remarks and continues to stand behind those statements.
Not surprisingly, Ye’s commitment to spreading antisemitic and racist remarks was not taken well by the world at large. In the weeks that followed the insensitive statements, several of Ye’s sponsors have been caught in the fallout.
How did Kanye’s rants hurt his sponsors?
Many citizens of the world are glad that Ye was called out about his antisemitic and racist social media posts. And as an investor, you are likely interested in seeing what kind of financial damage these comments caused.
Here’s a breakdown of what happened to Kanye’s brand sponsors after his statements made the headlines.
With increasing pressure, Adidas ended its deal with Kanye West. Since 2013, the company has been selling Yeezy-branded products. One of the most popular products was the Yeezy-branded shoe.
When making the split, Adidas said in a statement, “Adidas does not tolerate antisemitism and any other sort of hate speech. Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness.”
At the announcement of the breakup, Adidas immediately ended the production of Yeezy-branded products. When Adidas pulled the plug on Kanye, his net worth plummeted from over $1 billion to around $400 million.
However, Kanye wasn’t the only party to feel the fallout. Adidas is also facing some tough economic results. According to a press release, “This is expected to have a short-term negative impact of up to €250 million on the company’s net income in 2022, given the high seasonality of the fourth quarter.”
That’s a big hit to the company’s bottom line, but Adidas plans to address the potential declines in the quarterly earnings announcement scheduled for early November.
The Balenciaga brand’s parent company, Kering, also cut ties with Ye last month. With this announcement, the brand is ceasing to work on any projects tied to the artist.
Unlike Adidas, Balenciaga had a much more limited connection with West. The latest collaboration hit the market in February, but it’s unclear exactly how much financial damage Balenciaga will incur by cutting ties. In reality, the fashion house works much more closely with West’s ex-wife, Kim Kardashian.
When compared to Adidas, the financial hit of parting ways with Ye likely won’t be as significant for Balenciaga.
Although Foot Locker isn’t necessarily a sponsor of Ye’s, the company has a relatively big interest in Yeezy shoe releases. As of late October, the company told the press that it would not be supporting any future Yeezy releases.
Foot Locker could be especially vulnerable to the financial fallout of this move, as stores are also losing out on sales from the company’s decision to carry a decreasing amount of Nike products on sales floors.
How this impacts investors
For stock market investors, the effect on consumer brands and their publicly traded stocks might feel like a bit of a roller coaster. On a day-to-day basis, the stock market remains extremely volatile during uncertain economic conditions. But when you throw in headlines generated by celebrities like Kanye West, specific companies can take an unexpected dip.
In light of the recent headlines, most Adidas investors are understandably concerned. According to some estimates, the Yeezy line accounts for somewhere between $1 billion to $2 billion in sales for the company. At this point in the year, the company expects to miss out on up to $246 million in profits that might have been earned through the Yeezy line.
As an investor, this loss in potential profits is concerning. And that might be why the company’s stock price fell from $51.36 to $47.54. The sudden drop in price occurred after Adidas made the statement regarding parting ways with Ye.
However, the 3% drop only represents a small fraction of the stock price’s fall over the last year. Since the start of the year, Adidas stock has lost 66.02% of its value.
No one can predict the future, but it seems likely that Adidas stock will be on the decline as the company sorts out the messy divorce from Kanye West. According to many, it’s likely that Adidas will continue to sell the shoes without the Yeezy brand. It’s possible that the company will find a way to right the ship before too much damage is done.
When investing in stocks, the headlines can make a big difference, marketplace sentiment cannot be underestimated. That’s especially true when a celebrity or company representative makes a splash in the news for all of the wrong reasons. Given the impact of these swings, keeping up with the news cycle might be an important part of maintaining your investment portfolio.
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