Public Relations and Profit Maximization in the Washington Redskins Trademark Dispute

There are a lot of interesting business questions surrounding the NFL these days.  One is the recent "discovery" that the NFL is organized as a non-profit.  Many were shocked by the fact that the NFL received the same tax treatment as Habitat for Humanity, but there was not a significant movement to revoke this status.

Probably the most interesting recent dilemma has been the reaction to the controversy surrounding the name of the Washington Redskins.  After 80 years of using the name "Redskins", seemingly out of nowhere, there has been a huge groundswell of support for changing the name, citing insensitivity.  Lacking a viable legal option, the government has taken its first step towards forcing a name change: the patent office has cancelled federal trademarks on the name.

So what does this action really mean?  What is the effect of cancelling trademarks for an NFL team?

First of all, it's important to note that the Washington Redskins are ranked by Forbes as the #3 most valuable NFL team, worth over $1.7 billion.  This was even before the recent offers for the LA Clippers of over $2 billion, so that valuation may be out of date.  But what drives this valuation?

Unfortunately, the NFL and the Washington Redskins do not release detailed financial numbers.  However, economists and market researchers have estimated the magnitude of NFL revenue from various sources:

1. Ticket and concession sales.  This should be obvious enough.  In the past, this was probably the majority of the revenue.  Today, it is very small compared to other sources.
2. Media and television rights.  With the creation of the NFL Network and the gradual transition to internet streaming video, this could become even larger than it already is.  Soon, there will be no barrier to watching every one of your team's games no matter where you are.
3. Sponsorships and advertising.  From banners in the stadium to the name of the stadium itself, the NFL is not short on opportunities for advertisers.  The cost of Super Bowl commercials is legendary and ever-increasing.
4. Licensing and merchandising.  The NFL is notoriously litigious on this.  This is the reason that so many Super Bowl parties refer to "The Big Game" rather than the Super Bowl, due to fear of being sued.  It is also the revenue stream that the government would no longer protect for the Redskins.

While broadcasting rights appear to be the lion's share of revenue, the value of the brand for the Washington Redskins (on which all merchandising is based) is believed to be around 8.4% of the total valuation of the team.  Assuming the Redskins lose protection for their name, it would open the doors for third-party merchandise to flood the market with Redskins hats, shirts, jerseys, glasses, bumper stickers, etc.  Without having to pay licensing fees for the name, producers of these products would have extremely low costs and therefore be able to offer them for significantly cheaper than licensed merchandise.  When consumers are faced with an abundance of inexpensive merchandise, the demand for official Redskins products would decline drastically.  This could be particularly damaging to the Redskins, as they have the fourth highest merchandise sales of any NFL team.  Combine this with the fact that, should the team continue with the name "Redskins", there will be extreme pressure on politicians to not attend games or support the team.  For a team in Washington D.C. (technically in Maryland, but close enough), this could further exacerbate the lost revenue from merchandise.  In essence, Dan Snyder now has to accept drastically lower returns on his investment or change the name of the team.  If he decides the former, the NFL may intervene or the government may take more forceful action.

Personally, I think that Dan Snyder will eventually have no choice but to change the name.  As an organization, the NFL is in the middle of a firestorm of negative media attention.  Whether it is the non-profit status, the increasing reports of playing football leading to long-term health problems, or this issue with the Redskins name, the NFL is hanging on for its life as America's most popular sport.  I think that the NFL commissioner will eventually force Snyder to change the name, which Snyder will do.  In the short term, this will, ironically, create a huge windfall for the Redskins, as every fan with Redskins gear will have to go out and buy gear with the new brand (the Washington Filibusters?  Just a thought).  It will be interesting to see what the repercussions are for other teams with controversial names or logos and what will be determined to be controversial in the future.