How did Kanye’s anti-Semitic rants hurt his sponsors?
Key points to remember
- Ye, formerly Kanye West, supported his anti-Semitic rants on social media.
- Many sponsors have thus severed ties with the musician.
- Most notably, Adidas is shutting down production of the popular Yeezy line, which could mean losing millions in sales.
When a brand is linked to negative headlines, sales are expected to suffer. At the very least, a brand linked to bad press often needs to make significant changes to win back the goodwill of shoppers. Worse still, companies may face a boycott of their products.
Either way, the market won’t be kind to companies that get caught up in racist behavior, especially if the company is unwilling or unable to make change.
Let’s explore how the latest celebrity rants are hurting sponsors.
So what’s up with Kanye?
Kanye West (also known as Ye) isn’t new to the limelight, but his latest round of headlines is definitely getting bad press. The musician-turned-fashion designer has made anti-Semitic remarks and continues to support those statements.
Unsurprisingly, Ye’s commitment to spreading anti-Semitic and racist slurs has not gone down well with the world at large. In the weeks following the insensitive statements, several of Ye’s sponsors were caught up in the fallout.
How did Kanye’s rants hurt his sponsors?
Many citizens around the world are happy that Ye was called out for his anti-Semitic and racist social media posts. And as an investor, you are probably interested in the type of financial harm caused by these comments.
Here’s a breakdown of what happened to Kanye’s brand sponsors after his statements made headlines.
With growing pressure, Adidas has terminated 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.
During the separation, Adidas said in a statement: “Adidas does not tolerate anti-Semitism and any other type of hate speech. Ye’s recent comments and actions have been unacceptable, hateful and dangerous, and they violate the values of diversity and inclusion, mutual respect and corporate equity.
Upon news of the breakup, Adidas immediately ceased production of Yeezy-branded products. When Adidas terminated Kanye, his net worth plummeted from over $1 billion to around $400 million.
However, Kanye wasn’t the only one feeling the fallout. Adidas is also facing difficult 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 strong seasonality of the fourth quarter”.
It’s a blow to the company’s results, but Adidas plans to address potential declines in the quarterly earnings announcement due in early November.
Balenciaga’s parent company, Kering, also severed ties with Ye last month. With this announcement, the brand stops working on any project related 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 how much financial damage Balenciaga will suffer by cutting ties. In fact, the fashion house works much more closely with West’s ex-wife, Kim Kardashian.
Compared to Adidas, the financial hit of parting ways with Ye is unlikely to be as big for Balenciaga.
Although Foot Locker is not necessarily a sponsor of Ye’s, the company has a relatively large interest in Yeezy shoe releases. At the end of October, the company told the press that it would not support any future versions of Yeezy.
Foot Locker could be particularly vulnerable to the financial fallout from the move, as stores are also losing sales due to the company’s decision to carry a decreasing amount of Nike products in retail spaces.
How it affects investors
For stock investors, the effect on consumer brands and their publicly traded stocks could feel like a roller coaster. On a day-to-day basis, the stock market remains extremely volatile in uncertain economic conditions. But when you add celebrity-generated titles like Kanye West, specific companies can dip in unexpected ways.
In light of recent headlines, most Adidas investors are understandably worried. According to some estimates, the Yeezy line represents between $1 billion and $2 billion in sales for the company. At this point in the year, the company expects to lose up to $246 million in profits that could have been made from the Yeezy line.
As an investor, this loss of potential profits is concerning. And that may be why the company’s stock price fell from $51.36 to $47.54. The sudden price drop happened after Adidas made the statement regarding the parting ways with Ye.
However, the 3% decline is only a small fraction of the share price’s fall over the past year. Since the start of the year, Adidas shares have lost 66.02% of their value.
No one can predict the future, but it seems likely Adidas shares will be down as the company settles the messy divorce from Kanye West. According to many, it’s likely that Adidas will continue to sell the shoes without the Yeezy branding. It’s possible the company will find a way to right the ship before too much damage is done.
When investing in stocks headlines can make a big difference, market sentiment cannot be underestimated. This is especially true when a celebrity or corporate representative is causing a stir in the news for all the wrong reasons. Given the impact of these fluctuations, keeping up with the news cycle can be an important part of maintaining your investment portfolio.
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