40 » Other Financial Commitments and Contingencies

Other financial commitments

adidas has other financial commitments for promotion and advertising contracts, which mature as follows:

Commitments with respect to promotion and advertising contracts maturing after five years have remaining terms of up to eleven years from December 31, 2019.

Compared to December 31, 2018, commitments for promotion and advertising contracts mainly increased due to the extension of the existing partnership with Real Madrid.

adidas has other financial commitments for leasing and other rental obligations which mature as follows:

The contracts regarding these leases with expiration dates of between one and eleven years partly include renewal options and escalation clauses.

The decline in leasing rental obligations from € 2.984 million to € 318 million compared to 2018 reflects the first-time application of IFRS 16.

Service arrangements

adidas has outsourced certain logistics and information technology functions, for which it has entered into long-term contracts. Financial commitments under these contracts mature as follows:

Litigation and other legal risks

The company is currently engaged in various lawsuits resulting from the normal course of business, mainly in connection with distribution agreements as well as intellectual property rights. The risks regarding these lawsuits are covered by provisions when a reliable estimate of the amount of the obligation can be made. See note 20 In the opinion of Management, the ultimate liabilities resulting from such claims will not materially affect the assets, liabilities, financial position and profit or loss of the Group.

The company is in dispute with the local revenue authorities in South Africa (SARS) with regard to the customs value of imported products. In June 2018, SARS issued a ruling claiming a customs payment including interest and penalties for the years 2007 to 2013 in an amount of ZAR 1.871 million (€ 119 million). adidas has applied for a suspension of the payment demand and in 2019 instituted legal action against the decision before the High Court in South Africa. In case the court rules in favor of SARS, adidas will appeal against the decision to the Supreme Court of South Africa. Based on external legal opinions, Management currently believes that it is more likely than not that the claim made by SARS will eventually not result in an outflow of resources. Therefore, a provision was not recognized in the consolidated statement of financial position.

In connection with the financial irregularities at Reebok India Company in 2012, various legal uncertainties were identified. The respective remaining risks cannot be assessed conclusively. However, based on legal opinions and internal assessments, Management assumes that the effects will not have any material influence on the assets, liabilities, financial position and profit or loss of the company.

In October 2018, a former employee of the company’s US subsidiary was convicted of wire fraud in connection with unauthorized payments to certain college basketball players or their families during the former employee’s time at the US subsidiary. The company’s US subsidiary, with the full support of the company, has cooperated and continues to cooperate with the prosecutors, including by conducting an internal investigation with the assistance of outside counsel. While Management currently believes that the actions of its former employee will not have any material influence on the assets, liabilities, financial position and profit or loss of the company, actual results may ultimately differ from the current Management assessment. Any additional statements about these matters by the company could compromise the company’s position in these proceedings and hence further information is not disclosed.