“Kanye West has one of the biggest hits of the decade – and it has nothing to do with music,” Forbes asserted last summer. Sure, Kanye’s studio albums – from his 2004 debut The College Dropout to his most recent Ye – have made him one of the most famous musicians in the world. However, it is his Yeezy sneaker venture, a partnership with German sportswear giant adidas, which first dropped in February 2015, that has positioned the 42-year old as retail force to be reckoned with.
Not unlike Michael Jordan, who made his name in basketball before making a pretty penny by way of his eponymous tie-up with Nike beginning in the 1980’s, “The key to West’s wealth stems from sneakers,” Forbes Zack O’Malley Greenburg stated in 2019. (Valentim Group, the valuation firm launched by a handful of former partners from U.S. transfer pricing firm Economics Partners, puts the value of his music catalog to date at an approximately $110 million).
While West’s ongoing partnership with adidas made its formal debut in 2015 (the parties actually began working together in 2013), his footwear ambitions date back further. His Yeezy line first made headlines by way of the shoes he launched with Nike in 2009, which he then parlayed into a multi-year deal with adidas in 2013, noting that his 2012 Air Yeezy II “was the first shoe to have the same level of impact as an Air Jordan, and I wanted to do more.” He also wanted royalties (i.e., a percentage of gross or net revenues derived from the sale of the Yeezy sneakers), which Nike reportedly was not giving him (or any other athletes at the time).
It would not be long before Nike’s closest and longest-standing rival, the Herzogenaurach, Germany-based adidas stepped in and offered him a better deal. “With the help of [then-manager] Scooter Braun, [adidas offered West] what appears to be an unprecedented [licensing] deal” in furtherance of which adidas can use the Kanye west-owned Yeezy name, and make and market products. In return, West gets “a 15 percent royalty on wholesale, according to sources familiar with the deal, plus a marketing fee,” according to Forbes. That is more than the 5 percent royalty that the New York Times recently reported that West earns – the same percentage that Michael Jordan earns from his partnership with Nike.
Bloomberg wrote recently that “West’s partnership with Adidas AG, which manufactures and distributes the shoes, is more of a profit-sharing agreement than a typical licensing deal.” In furtherance of the agreement, one that is set to end in 2026, “West has “creative control over designs, while Adidas handles fulfillment and production.”
Yeezy: A Multi-Billion Dollar Business
Fast forward five years from the debut of the Yeezy adidas collection, and the rapper-slash-designer and the German sportswear giant have the $3 billion-earning Jordan empire “in [their] sights, in terms of both cultural clout and commercial prowess,” Forbes projected last year. The Yeezy venture was, according to Forbes’ calculations, “expected to top $1.5 billion in 2019. That figure represents a 50 percent increase from 2018, per Bank of America, and and as of the summer of 2019, was “still growing,” according to Forbes.
Newer figures put the business beyond that point. According to Bloomberg, “Bank of America Corp. valued the sneaker side of the business alone at as much as $3 billion last year,” cautioning that “that was before the COVID-19 pandemic devastated the fashion industry.” While the global health pandemic is expected to significantly impact retail brands’ bottom line, on a larger scale, Bloomberg states that “the brand has managed to avoid some of the most dire consequences, as it’s sold almost entirely online, and adidas handles the logistics.”
Specifically addressing West’s Yeezy deal with adidas, Bloomberg’s Sophie Alexander and Kim Basin put the deal in context of adidas’ larger portfolio. Citing Neil Saunders, an analyst at GlobalData Retail, a retail research agency and consulting firm, Bloomberg states that “Yeezy is ‘vitally important’ for Adidas. Though it may be taking some sales away from the sneaker-maker’s other lines, Yeezy has had a halo effect on them, adding cultural prestige and raising the brand’s credibility with younger shoppers.”
This does not necessarily contradict New York-based market research company NPD Group’s vice president and senior industry advisor Matt Powell, who has long held that for the majority of its shelf life, the shoes in the Yeezy collection, like most limited edition celebrity pairings, have benefitted from demand based on product scarcity. As such, “adidas’s hot streak over the past [several] years was more about regular Boost, NMD, and other hot shoes that found the fascination of the sneaker-buying public,” Deadspin wrote in November 2018, asserting that those sneakers are the ones “that sold numbers that affected Adidas’ bottom line.”
Around the same time, in response to reports of falling demand for Yeezy footwear, largely in connection with an increased volume of the Boost v 350 in triple white that adidas put into the market, the sportswear company’s CEO Kasper Rorsted spoke to such concerns in an investor call on the heels of the brand releasing its Q3 2018 financial results. He said they had seen “absolutely no slowdown in the Yeezy business,” and said that “as we are moving new Yeezy products into the market, we will do what we’ve done also in the past: Create scarcity around the new products we are launching, make sure we have the hype, and, over a given period of time of course, drive volume into that market.”
Who Owns the Intellectual Property Rights?
As for how the parties’ partnership works from a technical, intellectual property-ownership standpoint, Forbes’ 2019 profile shed some light on that. Despite adidas holding the rights in the Yeezy footwear designs, themselves (adidas designers Nic Galway and Aurelien Longo are listed as inventors of design patents for the Yeezy 750 Boost; and Galway, alone, is listed as the inventor of the patent-protected classic Yeezy boost sneaker and variations thereof, with all of the patents being assigned to (i.e., owned by) adidas), “West still owns 100% of Yeezy.”
That full ownership stake is directly tied to the wildly-valuable trademark rights at play. West’s Mascot Holdings is the sole holder of registrations for “Yeezy” and “YZY” for use on footwear and apparel, which West licenses to adidas for use on the footwear collection, enabling him to bring in royalties and still maintain complete ownership over the identity of the venture.
*This article was initially published in July 2019 and has been updated to reflect Bloomberg’s new figures.