Adidas has accused American rapper, Ye, formerly known as Kanye West, of diverting $75 million from a $100 million-a-year marketing fund.
Fortune reports that the two sides trade accusations behind closed doors over the partnership that imploded last year, sending the German apparel maker reeling.
Details of the dispute, which is being conducted through an arbitrator, had been closely guarded until they were accidentally revealed in a related hearing in May, when the parties’ lawyers discussed them in open court.
Bits and pieces of the conflict have also been seeping out in legal filings, including one in which Adidas alleges that the hiphop artist formerly known as Kanye West and his fashion brand Yeezy LLC “mishandled virtually all of the marketing funds” — including by deploying them for unauthorized purposes.
“There is nobody in the courtroom, your honor, other than the parties and their counsel,” Mark Goodman, an attorney for Adidas, told US District Judge Valerie Caproni at the hearing in Manhattan as he prepared to talk about information submitted under seal.
“That’s fine,” Caproni said, according to a transcript of the hearing. “Be aware it’s possible a reporter could walk in at any time.”
And then one did. The lawyers, who didn’t notice, went on to discuss the previously undisclosed marketing fund that Adidas executives had put in place.
Adidas cut its Yeezy partnership with Kanye West in 2022 days after he showed a “White Lives Matter” T-shirt design at Paris Fashion Week.
Adidas earlier said it would review the Yeezy partnership with West over his anti-semitic comments.
The German sports brand said comments and actions from West, who had officially changed his name to Ye, had been “unacceptable, hateful and dangerous, and they violate the company’s values of diversity and inclusion, mutual respect and fairness”.
The company said in the short-term, it would take a hit of €250m (£217m) to its income for the year after deciding to cut ties with the celebrity.
In 2020, the partnership brought in nearly $1.7 billion in revenue for Adidas, according to Bloomberg, and was due to expire in 2026.
According to Fortune, Adidas claims that last year it paid $50 million into a Yeezy bank account in Wyoming, where the rapper/designer used to live, and $25 million into Yeezy’s JPMorgan Chase account in New York, all to be put in a special pot for marketing.
Instead, it alleges, the money was immediately transferred into a separate, general account where it was commingled with other Yeezy funds, in violation of their agreement.
Adidas is locked in secret arbitration with Ye and three of his companies claiming he single-handedly reduced the promising venture to “economic rubble.”
It is pursuing an accounting of the funds and a return of the $75 million, minus any amount Yeezy can show was used for valid marketing purposes, as well as unspecified monetary damages.
“No one should be held in that position where people can steal from them and say we’re just paying you to shut up,” he said in an interview with Bloomberg in September shortly after firing off a series of Instagram posts hammering Adidas executives. “That destroys innovation. That destroys creativity. That’s what destroyed Nikola Tesla.”
A heavily redacted copy of Ye’s arbitration counterclaims includes the accusation that Adidas copied Ye’s designs to make its own lower-priced shoes. Adidas claims it owns all of the Yeezy shoe designs, which Ye has publicly said are his.
The dispute became public when Adidas went to federal court in New York to try to freeze the $75 million to prevent Ye from dissipating it or moving it out of reach.
William H. Taft V, a lawyer for Adidas, declined to comment on the dispute. A lawyer for Ye didn’t respond to a request for comment.