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The Kanye West Fallout Will Cost Adidas At Least $250 Million This Year 

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A tough year for Adidas got even more complicated on Tuesday when it cut ties with Kanye West—one of the brand’s most profitable partners—after he made a series of antisemitic remarks on social media and embraced a slogan associated with white supremacists. The decision will cost the company at least $250 million this year, though experts in managing corporate crises tell TIME it was the right thing to do.

But for the affected Jewish community, the cost of the delay is incalculable, experts say.

“Doing the right thing as a company is more important than just the bottom line,” says Steven Fink, a crisis consultant and author of Crisis Communications: The Definitive Guide to Managing the Message. “And the fact that it took them so long to recognize that, I think speaks volumes about where their head is at.”

Adidas joins a number of other companies in dropping West, who now goes by Ye, including GAP, Balenciaga, Vogue, JPMorgan Chase, talent agency CAA, and MRC Entertainment—which shelved a finished documentary on him.

Impact on Adidas

For Adidas, the German company that’s known for its marketing tactics and iconic three-stripes logo, reputation is just as important as the brand itself. The company had been under intense scrutiny over the last month from Jewish community groups that condemned its nine-year relationship with Ye and called on the company to end its partnership with Yeezy, his sneaker and clothing company.

Pressure on Adidas mounted this weekend after members of a hate group draped signs over a major highway in Los Angeles that said, “Honk if you know Kanye is right about Jews.” Photos of the men doing the Nazi salute went viral on social media, prompting a number of celebrities to call out Adidas for not immediately cutting ties with Ye after his previous comments. The company’s own director of trade marketing even weighed in on the controversy, writing in a lengthy LinkedIn post that Adidas has “dropped athletes for using steroids and being difficult to work with but are unwilling to denounce hate speech.”

“When your own employees are calling for you to take action on social media, you probably already let the issue go too far,” says Erik Bernstein, president of Bernstein Crisis Management.

The company admitted in a statement on Tuesday that its decision to terminate its partnership with Yeezy will have a short-term negative impact of up to €250 million ($249 million) on its net income this year. According to Morningstar analyst David Swartz, Yeezy generated an estimated $2 billion a year, close to 10% of the company’s annual revenue. But during a time when consumers want companies to address societal issues, consultants say it’s increasingly important for business leaders to listen to voices in the community—even if it hurts the company financially.

Still, the fallout comes at an inopportune time for Adidas. The company has been facing weak demand in some of its key markets this year, with shares of its stock down to their lowest point since 2016 due to surging inflation and less consumer spending power. Mark DiMassimo, the founder and creative chief of the marketing agency DiGo, says Adidas will now need to focus on creating a new product line that can make up that lost revenue. “Adidas absolutely can rebound and find success after this,” he says. “They are going to be paying the price for this for some time. But they’re one brilliant style, product or marketing innovation away from making it again.”

For now, the future of the Yeezy brand is unclear. While Ye owns the trademark, Adidas wrote in a statement that it is “the sole owner of all design rights to existing products as well as previous and new colorways under the partnership.”

A spotlight on antisemitism

Ye’s hateful rants about the Jewish community presented a particularly sensitive challenge for Adidas, given the company’s long history in Germany. Its founder, Adolf Dassler, was a member of the Nazi Party and outfitted the Hitler Youth, a youth organization of the Nazi Party.

“The thing about it being Adidas—I can say antisemitic things and Adidas can’t drop me. Now what? Now what?” Ye said on a podcast. According to Bernstein, that comment was the “nail in the coffin.”

But by not cutting ties with Ye earlier, DiMassimo says Adidas brought more attention to the company’s dark history and inability to take action, leading people to start digging up the Nazi past of Adidas and associating their brand name with Nazi participation. “This was a self-inflicted wound,” he says. “A major brand failure.”

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.”

Ye’s comments also highlight a rise in antisemitic sentiments in the U.S. In 2021, the Anti-Defamation League reported that there were more than 2,700 antisemitic incidents, a 34% increase from the year before.

“I take it very personally because I identify with that population. And I’m also a student of World War II history,” Fink says. “People he does business with should care about his comments. They should know who they’re getting in bed with.”

What the future holds for Ye

For Ye, the 24-time Grammy Award winner, being in the spotlight is nothing new. He wore a t-shirt emblazoned with “WHITE LIVES MATTER” to the Paris Fashion Show, and falsely claimed that George Floyd—a Black man who was killed at the hands of Minneapolis police—died from a fentanyl injection. He also recently showed Adidas executives a pornographic film during a meeting.

Ye began airing his grievances with Adidas this summer, when he falsely accused the company of stealing his designs.

“He’s not going to be the grand marshal of the New York City parade,” says Juda Engelmayer, president of HeraldPR, who has advised clients like Harvey Weinstein. “But if he makes music that people like and creates more apparel, his base will probably still support him. The trouble is it will be hard to get manufacturers and brands to work with him.”

He recommends that Ye lay low and duck out of the media for several months, though the billionaire artist and designer may find that hard to do after he recently purchased the social media platform Parler, which bills itself as a platform for “uncancelable” free speech.

Bernstein agrees: “If he ducked his head and came back in a year with an absolute banger of an album, he could be back if he keeps his mouth shut. If it was virtually anyone else, I’d say that he’s done.”

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Write to Nik Popli at nik.popli@time.com