Does Adidas need to rethink its celebrity partnership playbook?

The news comes the same month that Adidas warned that it could lose $1.3 billion in revenue this year over its breakup with Kanye West. Adidas terminated its nine-year partnership with West, who now goes by Ye, last October after the rapper made several antisemitic remarks and spread false conspiracy theories. In the meantime, Adidas’ partnership with Beyoncé is suffering, with sales of the singer’s Ivy Park line reportedly down 50% in 2022. Executives are meeting to discuss whether to renew the contract between Adidas and Beyoncé, which ends after 2023, sources told the Wall Street Journal.

Ideally, Adidas’ other divisions could pick up the slack, in the short term. But Adidas’ overall finances are slipping, with the company issuing four profit warnings in less than six months. In addition to the fallout from its Yeezy deal, Adidas expects one-off costs of some $214 million in 2023. Its new CEO Bjørn Gulden, who came over from Puma, has admitted the company is “not performing the way we should” and will need to “put full focus on the consumer, our athletes, our retail partners and our Adidas employees.” Going forward, Adidas will likely need to make widespread changes, particularly in product innovation, to make up for some of its lost revenue.

Like others in the footwear space, Adidas has a long history with high-profile partnerships. Over the past several years, it’s worked with athletes including Lionel Messi, Damian Lillard, James Harden, Billie Jean King and Candace Parker. More recently, it’s courted collaborators from other sectors, like music and film, inking collaborations with Pharrell, Bad Bunny and Rita Ora. It’s also branched out into partnerships with luxury houses like Gucci and Balenciaga.

While it may seem counterintuitive for a footwear giant to work with non-athletes, more brands are doing so these days. Nike, for instance, has collaborated with musicians like Kendrick Lamar, Billie Eilish and J Balvin, as well as fashion designers like Virgil Abloh. Puma has collaborated with Solange Knowles, Alexander McQueen and Jay Z. It’s formed more niche partnerships, as well, including recent collaborations with Tommy Jewels, a jeweler in New York City’s Chinatown, and Russ & Daughters, a New York City restaurant. Brands are also increasingly working with Gen Z influencers and celebrities. DSW has partnered with TikTok creator Ellie Zeiler, while Converse has worked with Millie Bobby Brown.

Zooming out, “we believe that the growth audience for any brand sits at the intersection of sports and culture,” Brian Quarles, chief creative officer for sports marketing agency Revolution, told Modern Retail.

These types of high-profile partnerships can be a game of high risk and high reward. When successful, they can significantly increase the draw and value of a brand. Nike’s Jordan Brand is “easily worth more than $10 billion,” according to Forbes, and Puma has made millions since appointing Rihanna its women’s creative director in 2015. Adidas’ deal with Ye, which it formed in 2013, typically brought in $2 billion a year in sales, making it one of the most successful partnerships in history.

Many factors contributed to Yeezy’s success, Tom Nikic, SVP of Equity Research for Wedbush Securities, told Modern Retail. For one, Ye was one of the biggest rappers in the world, and for another, his shoes were some of the first to use Adidas’ Boost technology, which Adidas says provides “a precision-engineered comfort you can feel underfoot.” However, as Adidas saw in the case of its partnership with Beyoncé, “it’s not an easy-to-replicate situation,” Nikic said. “You can’t just plug and play another artist and say, okay, this is what this partnership is supposed to do.”

These types of partnerships can be extremely expensive, too, which ups the stakes if they don’t perform well. Beyoncé, for example, reportedly made $20 million a year from her deal with Adidas — making her partnership “more akin to a big budget movie,” Andrew Lipsman, eMarketer principal analyst at Insider Intelligence, said. “If you’re paying A-list celebrities those types of salaries, if that movie bombs… there’s downside there.” In addition, whereas movie studios can mitigate risk with several movies, “I don’t know that you can diversify that risk quite as well when it comes to celebrity apparel partnerships,” Lipsman said. “You’re putting a lot of eggs in one or two or three baskets, in most cases.”

Still, experts told Modern Retail that cutting off or avoiding these partnerships is not the answer. In regards to Adidas’ partnership with Beyoncé, “maybe they look at how they design Ivy Park moving forward, or what category it’s in,” Quarles said. “Or they match someone else up with Beyoncé and bring other people under the Ivy Park banner to drive more interest or diversify what that title means.”

Ultimately, “with any celebrity partnership — athlete or entertainer, artist, musician — you’ve got to do some vetting,” Quarles added. “And those are risky partnerships, potentially. But the value of those partnerships, the amount of reach that you can get out of a name like Beyoncé, is pretty amazing.”