Inside Slant: Presumed Redskins bonanza

June, 30, 2014
Jun 30
10:00
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We in the sports world like to simplify complicated economic issues, and so goes a question I've heard from readers and admittedly wondered myself: Why would a capitalist such as Washington Redskins owner Dan Snyder oppose changing his team's name when he could make a ton of money from merchandise sales adorned with the new brand?

The quick answer: Because he probably can't, at least not in the short term. A poke through the NFL's labyrinth of financial rules and interviews with experts revealed two important factors. First, a chunk of that revenue would be shared with 30 other teams. Second, the immediate costs connected with a rebrand could extend into "the millions," according to one analyst.

[+] EnlargeRedskins
AP Photo/Nick WassRebranding the Redskins would likely cost the team millions of dollars in the short term.
Let's consider each issue separately.

The NFL's revenue-sharing system is set up for all teams but the Dallas Cowboys to share national merchandise sales. (The Cowboys opted out of the consortium.) So when you buy a Robert Griffin III jersey at your local sporting goods store, the NFL's portion of the proceeds is split equally among the remaining teams. The Redskins would receive 1/31 of it.

Teams are incentivized to set up their own points of purchase, however, and they keep the profits from those sales. So if you buy an RG III jersey from the Redskins' website, or at FedEx Field or when you visit training camp, the Redskins don't have to share their take.

The breakdown of sales between national and team-specific points of purchase is a closely held secret, but given the international appeal of the Redskins, it's safe to say that a good chunk of their total sales must be shared with the other 30 teams. As a result, the Redskins would miss out on at least a significant portion of whatever uptick a new name would drive.

And in the bigger picture, the experts I spoke with weren't certain of our basic premise: that a name change would drive massive sales of merchandise.

"It really depends on how the change is perceived," said David Carter, the director of the Sports Business Institute at USC. "Remember, fans don't like name changes. They learn to live with them. If they perceive the team has handled it well, that it was proactive and collaborative, if the community viewed it as a good decision, and they had a great marketing game plan and messaging, if they went that route, it could be a success."

Mark Conrad, the director of the sports business specialization at Fordham's Gabelli School of Business, said the name change could be a "bonanza" if it is proactive and well executed. If it's forced, however, Redskins fans might not buy in -- literally.

"It could be a bonanza if you get the right name and process," Conrad said. "If you did it right, by yourself without a court saying it or the NFL saying it, it could bring you goodwill on a local and national level. But if the owner is smirking or growling about it, if you're effectively saying, 'I don't like this new brand but I'm forced to do it,' as opposed to saying, 'This is a creative new way to maintain the identity of the franchise,' then revenues will be impacted."

Meanwhile, Conrad said it would be difficult to provide a specific estimate on the second factor: the costs relating to a name change. The Redskins would presumably absorb all of them.

Four years ago, Michael Jordan estimated it would cost between $3 million and $10 million to revert his NBA franchise name in Charlotte back to the Hornets from the Bobcats, a change completed this summer. (The final number is likely to be $4 million, Hornets CEO Fred Whitfield said in May.) Generally speaking, NFL franchises are bigger businesses than those in the NBA, but using a multiplier in this case would just be a guess.

"There are just so many factors involved," Conrad said, from potential consulting fees to physical changes on owned property to legal costs. "It could be millions of dollars in the short term. That, I think, is a good estimate."

Given the unprecedented nature of an NFL name change, Carter said it is possible that the league could step in to cover some costs, reducing the drag on the Redskins' bottom line. The league would also have to decide what to do with the Redskins' existing inventory of merchandise. It's possible the team would be responsible for buying it, especially if the NFL mirrors its policy for when players change their numbers. (Players must buy out the inventory before new merchandise is produced.)

These are all issues of short-term finances, of course. Both Conrad and Carter said the long-term matter of brand impact could be far more valuable. In an immediate sense, however, it's difficult to envision the kind of net revenue bonanza that seems intuitively obvious to those of us in the world of amateur sports economics.

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