memo 22: Master P and Reebok

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Hey! 2021 is here, and Trapital is starting the year off with a new podcast, an upcoming webinar, and a breakdown on Master P and Reebok.

New podcast: why artists are selling music catalogs

I posted the recording of the webinar I hosted with entertainment attorney Karl Fowlkes on Why Artists Are Selling Their Music Catalogs. We broke down the reasons why so many artists sold their catalogs in 2020, the companies that want them, and where this trend is heading. We went in much more depth than I did in that BBC World News clip. If this topic interests you, check it out:

Listen on Apple Podcasts, Spotify, other platforms, or watch on YouTube.

Webinar on Def Jam - Thursday, January 14, 5pm ET

I'm hosting a webinar with music journalist Gary Suarez, who runs a great newsletter called Cabbages. We are gonna discuss Def Jam, one of hip-hop's most storied record labels. Why is Def Jam no longer as relevant as it once was? Who should run the label next? What will it take to bring Def Jam back? We'll break all that down and more.

Sign up here to register.

Master P and Reebok

One of the biggest stories over the holiday stretch was that Master P and Baron Davis are in talks to acquire Reebok. It's exciting news. Hip-hop culture loves Master P. But will it go down? Should it go down?

In 2003, Reebok had deals with Allen Iverson, Shaquille O'Neal, 50 Cent, Jay Z, and others. Reebok was hip-hop when the NBA itself was scared of it. Meanwhile, Adidas was outside the nightclub trying to get in before they charge for cover. At the time, Reebok seemed much more likely to partner with artists like Kanye West and Beyonce, while Adidas would struggle to try to serve everyone. But the dynamic flipped, and it's no coincidence.

In 2006, Adidas acquired Reebok for $3.8 billion—a 34% premium. But soon after, the company regretted the deal. “From the moment we started looking at the numbers, we knew it was a screwed-up business and that we’d paid too much,” a former Adidas exec told the Wall Street Journal. Sure, Reebok was far from perfect. It flooded the market with too many S.Dots and G-Unit sneakers. But if Adidas bought Reebok without looking at all the numbers, that's on Adidas.

Regardless, Adidas' rigid systems were bound to clash with Reebok's agency-inspired model. And since Reebok competed for the same customer Adidas wanted for its flagship brand, Reebok became an afterthought. Reebok tried to focus on extreme-training activities with CrossFit and UFC. The cult-like communities were there, but other apparel brands did a better job cornering those markets. Reebok became this pet brand pushed into areas Adidas didn't yet venture in. It was set up to fail.

‍Master P enters a crowded field. When the news of Adidas selling Reebok first broke, Authentic Brands Group (ABG) was named as a potential buyer. In 2019, Shaquille O'Neal, an ABG partner, expressed interest in acquiring Reebok since Adidas has "diluted [the brand] so much to where it's almost gone." Other potential buyers include VF Corp, which just bought Supreme for $2.1 billion, and Anta Sports, the third-largest sportswear company by revenue.

But those holding companies have portfolios of brands that get sold primarily in department stores. Holding companies succeed on breadth and scale. Reebok's fate could stay the same if it became one of the dozens of brands under those umbrellas.

Master P and Baron Davis offer a different value prop. Percy Miller's business ventures are mostly entrepreneurial. He builds from the ground-up. Percy Miller accumulates his wealth by owning a large share of smaller pies.

Reebok is not a smaller pie, but the brand still needs focus. Master P has succeeded in smaller-scale consumer-packaged goods and apparel lines, so that helps. An all-Black Reebok ownership group will inspire some business and get great PR, but this relaunch would still need more. Reebok's comeback needs a level of focus that the brand hasn't had since its 'Rbk' lifestyle days.

‍Will the deal go through? Master P told CNBC that Reebok is worth $500 million and there's no way he would pay $2.4 billion. It's a negotiation process, but I doubt Adidas sells for just 20% of its asking price. I won't be surprised if ABG, VF Corp, or another buyer is willing to pay $1.5 billion or more for the apparel company that made over $2 billion in revenue in 2019.

One of Master P's most popular quotes is "we in a culture that's a billion-dollar business, but we creating millionaires." If he gets this deal done, he gets to be in the driver's seat of a brand that had the potential to make a billionaire out of someone like Allen Iverson, who has to wait till 2030 (!) to get his $32 million trust fund payout.

But if it falls through, it still puts Master P in a position to land more deals. Unfortunately, there are tons of businesses that make billions off Black culture and only made millionaires out of their Black talent and contributors. Reebok is one of many. In 2021, there should be more opportunities for Master P, Baron Davis, and their business partners to make moves.

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‍Coming soon - essay on TikTok. Later this week!