Among the primary reasons sports franchises are so valuable is that they enjoy the inherent benefits associated with cultural distinctiveness. Essentially, they are part of the fabric of our society; they are important to our communities and the fans that follow them – both in good times and in bad.
Along the way, teams create externalities, which are usually deemed positive. These externalities, such as delivering a sense of pride throughout the community, are intangible assets that contribute to the value of a team; in the case of the Redskins, a team worth billions.
But now that a federal judge has called an end to the team’s federal trademark registrations, the Redskins owner, Daniel Snyder, finds himself in the unenviable position of having to determine a preferred course of action, one that focuses on the economic costs and opportunities associated with either maintaining the current name or abandoning it altogether.
When controversy envelopes a franchise, the positive externalities associated with the team can quickly turn negative and impact cash flow. This is beginning to occur now as strategic partners, which include elected officials, broadcasters, sponsors and fans, want stability, not contentiousness and heated national debate. These partners want to align their brands with those that will reflect favorably upon all involved and ultimately drive value, whether this be to a corporation or a fan.
Set aside one’s beliefs about how best to strike the delicate balance between being socially conscious and participating in political correctness run amok. Also set aside the politicization that has stoked a very high profile national debate. Because these factors have been forever imbedded in an argument that now appears to be leading to a name change, attention must now be turned to how best to monetize the team and, in the process, increase the team’s franchise value. Anything short of this and the very real risk of further and long-lasting brand damage to the organization will exist.
Snyder stands to benefit far more substantially by making the name change rather than resisting it. The reason for this is linked to the pursuit of a new stadium, the single biggest needle-moving economic opportunity afforded an individual franchise.
Sports franchises, like many other businesses, tend to be valued by forecasting a multiple of future revenue. There are two types of revenue streams generated by sports franchises. The first are sources of revenue that must be shared with the NFL and, by extension, the other teams in the league; the second are non-shared or lightly-shared revenue streams that the team largely gets to keep to itself. And both of these may be constrained until or unless Snyder relents and changes the team’s name.
When considering the name change, Snyder will be primarily focused on how best to drive non-shared or lightly-shared revenue sources, rather than concerning himself with shared revenue streams linked to national media contracts, league-wide sponsorship deals, and the sale of licensed merchandise outside of the greater D.C. market.
This kind of financial potential no longer exists in and around FedEx Field in Landover given its location and the relative lack of revenue generating opportunities now routinely found in newer venues.
Accordingly, the only way for Snyder to capitalize on the upside associated with these non-shared or lightly-shared revenue streams is to navigate the process of having a new stadium in the region approved. In doing so, an enormous business development opportunity will emerge. The upside attached to real estate development rights around the stadium, the substantial uptick in local sponsorship, to include naming rights and other stadium advertising, and premium seating revenue generated via the sale of personal seat licenses, will be substantial.
In addition to these sources, Snyder would likely garner significant public subsidies, as well as hundreds of millions of dollars from the league in order to help finance a new stadium. Once these investments are tallied and added to the meaningful incremental revenue he can create, the team’s revenue and brand status will rapidly accelerate, as will its overall franchise value.
But none of this will be possible as long as he is determined to continue his fight to keep the Redskins name. No public investment will be pledged and the NFL is unlikely to want to battle ongoing negative publicity in the wake of a further prolonged public relations and legal battle.
In the near term there may be millions in lost revenue from royalties associated with merchandise sales. Further, expenses attached to developing a new name and logo, as well as ensuring its accurate inclusion throughout all marketing and branding activities, will also be costly. However, these costs will prove nominal over time since the royalties from branded merchandise sales are comparably meager compared to the revenue generated from national TV contracts and sponsorship deals. Moreover, an anticipated spike in merchandise sales following the rebranding would enable the team to recover much, if not all, of the expenses associated with the marketing conversion.
In short, no long-term financial upside exists to maintain the Redskins name given the current circumstances, particularly when compared to the benefits associated with acquiescing to the name change. It appears as though all involved have now reached the point of no (financial) return. Lingering too long with a penny wise and pound foolish outlook will only suppress the value of one of America’s greatest sports icons. Conversely, a well-articulated and transparent name change will bring with it the very type of positive externalities the team’s stakeholders have sought for decades, finally allowing their constituents to refocus their energy on the Cowboys rather than the Indians.
David M. Carter is principal of the Sports Business Group and executive director of the USC Marshall Sports Business Institute, as well as editor-in-chief of TheFieldsofGreen.com.