39 » 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 22 years from December 31, 2022.

Compared to December 31, 2021, no new major signings or prolongations for promotion and advertising contracts occurred, hence the decrease for the commitments mainly reflects the yearly amortization.

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 10 years partly include renewal options and price adjustment clauses.

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:

Contingent liabilities

As of December 31, 2022, contingent liabilities exists in connection with guarantees from leases in the amount of € 73 million. These mainly relate to the Reebok business and could not be terminated upon its sale.

Litigation and other legal risks

The company is currently engaged in various lawsuits resulting from the ordinary course of business, mainly in connection with commercial agreements as well as intellectual property rights and partnership agreements. The risks regarding these lawsuits are covered by provisions to the extent a reliable estimate of the potential liability can be made. 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.  SEE NOTE 19

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 (€ 103 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 of Reebok India Company in 2012, various legal uncertainties were identified. At this stage, the respective ultimate risk cannot be determined conclusively. However, based on opinions obtained from external counsel and internal assessments, Management assumes that the possibility of any outflow in settlement is remote and therefore the effects will not have any material negative influence on the assets, liabilities, financial position and profit 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 with the prosecutors, including by conducting an internal investigation with the assistance of outside counsel. Management 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.

In 2012, both adidas and Nike launched knitted upper footwear products. Nike’s products were labeled ‘Flyknit,’ adidas’ shoes ‘Primeknit.’ Since 2012, both companies have initiated various legal proceedings in Europe and the US relating to the other company’s patents in the knitted upper space.

In December 2021, Nike filed a complaint with the US International Trade Commission (ITC) alleging that certain adidas footwear products infringe six US patents covering Nike’s Flyknit technology. Nike requested in particular that the ITC (i) ban the import of adidas footwear products infringing Nike’s six US Flyknit patents into the US and (ii) issue a permanent cease-and-desist order directing adidas to refrain from importing, distributing, marketing, offering or selling knitted footwear products in the US that infringe Nike’s six US Flyknit patents.

In parallel, Nike also filed a complaint for patent infringement against adidas AG, adidas North America, Inc., and adidas America, Inc. with the US District Court in Portland/Oregon. Nike argues that certain adidas footwear products using knitted uppers infringe nine of Nike’s US Flyknit technology patents. Nike seeks (i) an injunction from the court preventing adidas from infringing Nike’s patents and (ii) monetary damages from adidas for past sales of Primeknit products in the US. The District Court proceeding was stayed until the ITC has rendered a decision.

The dispute between adidas and Nike was settled in August 2022 and, upon request of both parties, the ITC and the US District Court in Portland dismissed the pending cases.

In connection with the termination of the Yeezy partnership, adidas has initiated arbitration proceedings against Ye and entities controlled by him (Defendants) claiming, among others, damages. In this context, Defendants filed certain counterclaims against adidas. Management currently believes that these counterclaims will not result in any cash outflow.