Just one month ago, Diddy filed a dramatic lawsuit against liquor conglomerate Diageo. That lawsuit was dramatic for several reasons. First, Diddy was not only suing some random firm. He was suing the firm that has been his partner for around 15 years. A partner that has already paid him a massive fortune in the course of the 15-year partnership.
Secondly, in his lawsuit Diddy alleged that Diageo fully mismanaged one of the two brands they launched together, DeLeón Tequila, via a combination of fumbled distribution, neglect, a substandard redesign, and in some cases racial discrimination.
As expected, Diageo was not happy with the lawsuit and the liquor giant decided to officially cut links with the rapper/entrepreneur, bringing what has been a hugely lucrative 15-year partnership for Diddy to an end. How lucrative was this partnership? Thanks to Diageo’s official filing, the exact amount is now known.
Here is an extensive backstory on the Diageo and Diddy lawsuit.
The summary is that in 2007 Diageo invited Diddy to become a 50/50 partner in a vodka brand it launched several years before called Ciroc. Ciroc became a major success quickly mainly due to Diidy appearing in many commercials for the brand together with many of his A-list friends.
In 2013 Diddy encouraged Diageo to acquire a little-known tequila brand known as DeLeon. Sadly, Diddy soon started believing that Diageo was ignoring and even sabotaging DeLeon in favor of the Don Julio brand that it already owned, and Casamigos, which it acquired from George Clooney in 2017 for $1 billion.
Currently, Casamigos is the #1 best-selling Tequila in the United States with yearly sales of 2.2 million cases while DeLeon is languishing at #28 with a small fraction of the sales volume. Casamigos is believed to be worth over $10 billion currently and DeLeon is not worth very much at all. That might be the reason why Diddy is worked up.
His lawsuit claims that because of racism, neglect and many other bungled business practices, DeLeon was ruined in favor of Casamigos.
Earlier this week, Diageo fought back. In an official statement accompanying a legal filing, on June 27 Diageo stated the following:
“We are saddened that Mr. Combs has chosen to recast a business dispute as anything other than that and chosen to damage a productive and valued partnership. Mr. Combs’ bad-faith actions have clearly breached his contracts and left us no choice but to move to dismiss his baseless complaint and end our business relationship. Mr. Combs has repeatedly undermined our partnerships and threatened to publicly defame Diageo if we did not meet his unreasonable financial demands.
Diageo believes strongly in the CIRÔC and DeLeón brands and remains committed to their success, which is why we tried for years to salvage the broken relationship with Mr. Combs. We funded the purchase of DeLeón for the joint venture and proceeded to invest more than $100 million to grow the brand.
Despite having made nearly a billion dollars over the course of our 15-year relationship, Mr. Combs contributed a total of $1,000 and refused to honor his commitments.”
Here is the catch.
Diageo confirmed that in the past 15 years, it has paid Diddy…
“Almost A Billion Dollars”
Diageo never acquired Diddy’s 50% share in Ciroc. Assuming that this statement is true, the ‘almost’ $1 billion he has earned from the firm since 2007 is presumably nearly wholly royalty payments on Ciroc sales. That is quite unbelievable.
If the partnership did not implode and had Ciroc and/or DeLeon been acquired for billions, one may imagine a world where the partnership would have easily made Diddy a multi-billionaire as opposed to the mere $900 millionaire he is right now.
Even at only a billion dollars, his partnership earned Diddy a lot more than he ever got from his music career. Maybe 10 times as much. As the firm explained in the same statement, the root of the issues that are related to DeLeon tequila does not have anything to do with the accusations made by Diddy and is a result of a failure on his part to meet his contractual obligations.
Particularly, the firm complained that as a joint venture, both entities were obligated to contribute equal amounts to fund the brand. As learned in the above statement by Diageo, the company insists that it has spent $100 million on DeLeon while Diddy has contributed only $1,000. Again, from another statement:
“From its inception, the Combs Parties failed to fulfill their duty to fund the JV as an equal, fifty-percent owner with Diageo, investing a mere $1,000, while Diageo has invested over $100 million in funds. The Combs Parties’ failure to fund the JV created a contentious relationship, severely damaged the DeLeón brand at a critical juncture, and stalled its promise and potential for growth for several years.”
While responding to the statement and filing, Diddy’s lawyer released a statement of his own:
“Diageo attempting to end its deals with Mr. Combs is like firing a whistleblower who calls out racism. It’s a cynical and transparent attempt to distract from multiple allegations of discrimination. Over the years, he has repeatedly raised concerns as senior executives uttered racially insensitive comments and made biased decisions based on that point of view.
Diageo even acknowledged the problem by agreeing in his contract to treat DeLeon the same way it treated their other tequila brands. He brought the lawsuit to force them to live up to that contract, and instead, they respond by trying to get rid of him. This lawsuit and Mr. Combs are not going away.”