U.S. Markets closed

Adidas enters uncharted territory, going all in on Kanye West

German sportswear giant Adidas is putting quite a lot of eggs in the Kanye West basket.

The company announced on Wednesday a new long-term partnership that will include brick-and-mortar Yeezy retail hubs, new designs, and most noteworthy of all, sports performance gear. The gambit comes with potential high reward, but even higher risk.

The retailer first partnered with the rapper two years ago, when West left Nike in a huff. Together, they designed a line of Yeezy Boost sneakers, using the company’s “boost” running technology in street shoes. Adidas won’t break out sales of the Yeezy line, but U.S. sales in fiscal 2015 grew 12% for Adidas brand, which includes “Originals,” the division that houses the company’s fashion lines including collaborations with West and Pharrell Williams. Adidas projects 10% to 12% sales growth this year on the strength of such product. In 2015 so far, Nike stock is down 15% and Under Armour stock is down 2%. Adidas is up 45%, and 80% in the past 12 months.

In other words, Adidas is achieving a U.S. turnaround, and while West isn’t the only reason—the re-release of the Superstar with colorways designed by Pharrell Williams, and the popularity of the NMD, a new sneaker that has nothing to do with any celebrity, have also helped—he is a major contributor. Consider that on the sneaker resale market, Adidas has gone from a 1% to a 30% share in the time it has collaborated with West. The Yeezy line “is by far the hottest shoe” on StockX, a stock market for sneakers, says CEO Josh Luber.

Since signing the Adidas deal, West has publicly trashed Nike—all the better for Adidas. After the release of the first line of Yeezys, West railed that the Swoosh “suffocated” him and Adidas gave him “oxygen.” He included in a new song last year the line, “Nike, Nike, treat employees just like slaves / Gave LeBron a billi not to walk away.” Nike executives, he told Ellen DeGeneres, had the attitude, “‘Wow, the Yeezys did really good… but we’re not going to give him a shot in something else.’”

Now Adidas is giving him a shot in something else—something far beyond footwear. The company calls its new partnership, Adidas + Kanye West, “The most significant partnership ever created between an athletic brand and a non-athlete.” That may be true. Adidas has done design partnerships in the past with musicians like Katy Perry, Pharrell Williams, and Pusha T, and with fashion icons like Stella McCartney and Yohji Yamamoto, but never this extensive. The new line will create, “footwear, apparel and accessories for all genders across street and sport.”

Therein lies the biggest reach involved in the new deal: Yeezy performance gear. It places the West line into other divisions of Nike’s business besides Originals, and as a result, Adidas will separate Adidas + Kanye West into its own unit, with a dedicated staff at its U.S. headquarters in Portland. But will athletic consumers buy Kanye West-designed workout gear?

“Kanye is a true creator who has the ability to see things others don’t,” global CMO Eric Liedtke tells Yahoo Finance. “We are exploring new territories by opening up the sports world to Kanye’s creativity. This is what Adidas has always been about, empowering creators to create the new.”

Indeed, Adidas has recently pushed the “creator” theme in its sponsorships, with some clear success. In the last year, it has signed Aaron Rodgers and James Harden to its athlete roster, both known for having big personalities in their sport. In golf, TaylorMade-Adidas sponsored athletes Jason Day, Sergio Garcia, and Dustin Johnson have had breakout PGA Tour years—something Adidas obviously cannot control, but from which it benefits in exposure.

Adidas + Kanye West gear will be “sold at dedicated retail stores in the coming years that will serve as distinct hubs for this product.” It is unclear when the stores will open, where, and whether the stores will sell only Kanye West gear, but it’s likely you can expect brick-and-mortar locations that bear West’s name on the front—a major breakthrough for the rapper, who has long had ambitions of being a fashion icon. For the past two years in a row, Adidas has opened New York Fashion Week with Yeezy gear.

The announcement also means Adidas has re-upped West with a lucrative new contract. The company declined to share numbers or a duration of the new contract but says, “Both sides are committed to a long-term partnership and we have big plans.”

It also is taking on big risk—Adidas far more so than West. The rapper is a lightning rod for controversy and has been known to incite ire on social media, but far more importantly, he has been, at times, something of a legal liability. His surprise choice to put his latest album, The Life of Pablo, on all music streaming platforms, after he swore it would never go anywhere other than Jay Z’s streaming service Tidal, led to a lawsuit against the service from customers who say Tidal tricked them into signing up for the prospect of the exclusive album. Now his latest music video bears the likeness of public figures like Taylor Swift and Donald Trump, and lawsuits against West could come on privacy grounds.

Nonetheless, Adidas believes in the long-term, lasting viability of West’s brand. West, for his part, said in a statement the new deal, “ illustrates that anyone with a dream can dream without limitations.”

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

Read more:

Adidas is on an ironic hot-streak in golf

Here’s why Adidas is finally selling off its golf business

Maria Sharapova and 5 other athletes Nike dropped

How Olympic gymnast Kerri Strug made one vault last 20 years

Corporate America is drooling over these 2 Mets pitchers– and their hair