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Legal Watch

Legal Watch: Sporting Goods & Apparel; Toys & Games

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CrossFit and Reebok settle their litigation-related licensing disputes and “look forward to continuing their work together as partners mutually dedicated to improving individual health and fitness globally.” In 2010, the companies entered into a 10-yr. licensing and sponsorship agreement where Reebok would act as the title sponsor of the Crossfit Games and be licensed to sell CrossFit-branded fitness apparel and footwear.

Earlier this year, Crossfit sued Reebok claiming underpaid marketing obligations, improperly diverted sales, and underpaid royalties to the tune of $4.8 billion. Much of the dispute centered around whether Reebok was paying out a royalty rate based on wholesale revenues or retail revenues—a 50% difference. The settlement includes an undisclosed payment to CrossFit. Acquired by Adidas in 2005, Reebok has been slow to recover and only recently began reporting a profit this year.

Speaking of underperforming sports brands, Dick’s Sporting Goods CEO Edward Stack called out Under Armour as a major source of the retailer’s slipping same-store sales despite “double-digit growth” in e-commerce, private brands, and (apparently not all) athletic apparel. Under Armour recently expanded into 1,000 Kohl’s stores; that retailer’s quarterly report indicates the brand “delivered very strong growth” in the same time period.

Nike taps Colin Kaepernick to lead its 30th anniversary ‘Just Do It’ ad campaign. In 2016, Kaepernick was the 13th best-selling NFL player for licensed merchandise, per the NFLPA.

Adidas unites the Jenner-Kardashian clan under one banner; Kylie Jenner is now an official brand ambassador alongside sister Kendall Jenner and brother-in-law Kanye West. Jenner previously worked for Puma.

A Different China

In one of the first cases of its kind—in part because most that came before had settled—a Chinese court upheld the IP rights of Western prodco eOne to its Peppa Pig mark and imagery. eOne brought its copyright suit against a Chinese firm’s toys kitchen set decorated with Peppa Pig images via its shop in Alibaba’s Taobao marketplace.

The Hangzhou Internet Court—which specifically adjudicates ecommerce and other internet-related disputes—fined the producer 120,000 yuan (just over $17,600) and the sales company 30,000 yuan ($4,400).

Coloring in the Lines

According to the WSJ, it turns out that the surprising Toys ‘R’ Us bankruptcy—which caused vendors like Mattel and Hasbro to lose $350 million and some smaller companies to go under—only really happened because a minority group of hedge funds stepped in to turn a profit on TRU debt. Five funds leveraged $668 million worth of secured debt (just under 13% of the total $5.3 billion owed) to halt all restructuring efforts to a stop. The effort was led by Solus Alternative Asset Management, which managed to convince Angelo, Gordon & Co.; Franklin Mutual Advisors; Highland Capital Management; and Oaktree Capital that the company would be “worth more dead than alive.”

In the meantime, most stakeholders, per the paper, were working frantically to restructure operations and resurrect a leaner, more efficient toyco. Owners Bain, KKR, and Tornado, who took the company private in 2005 by loading it up with $6.6 billion worth of debt—had apparently “sunk” over $1.3 billion into the TRU deal and were “unwilling to put in more money” to keep the company afloat.

But the most important parties—the five secured debtors—had purchased their share of TRU debt for as little as 50 cents on the dollar. And they had a vested interest in liquidating TRU, rather than seeing the toyco emerge through a lengthy restructuring process, as the WSJ indicated by citing internal documents outlining higher returns for investors.


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