Adidas, which has sponsored Chelsea since 2006, said it had reached a mutual agreement to end the deal on 30 June 2017 instead of 2023.
It was understood that Chelsea initiated talks to end the deal early and are set to take up a new deal with a rival sportswear giant.
The English club will have to pay Adidas about £40 million compensation, in other to sign another sponsorship deal.
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The German company said in a statement that it will receive compensation from Chelsea to end the deal early, allowing the Premier League club to “enter a new equipment agreement with a competitor.” That competitor is believed to be Nike, although no official announcement has been made.
The statement read: “Chelsea Football Club and Adidas AG announced today that they have mutually agreed to terminate their existing partnership agreement prematurely.
“As compensation for the early termination of the contract, the Adidas group will receive a payment from Chelsea Football Club in 2017 that will already positively impact the group’s net income this year.”
Chelsea announced a 10-year deal worth £300 million annually in June 2013, but Manchester United subsequently signed a £750 million-per-year deal and Real Madrid agreed a £1billion, 10-year deal – both with Adidas – dwarfing the sum received by Chelsea.
Adidas will continue to sponsor Chelsea for the 2016-17 season and last week revealed its new strip for the club. The English club will wear the shirt for the first time when they welcome new champions Leicester City to Stamford Bridge this Sunday.
Individual players Lionel Messi, Paul Pogba and Gareth Bale are among the stars who hold their own deals with the German manufacturers.