The abrupt resignation today of Elmo puppeteer Kevin Clash amidst allegations of sexual misconduct couldn't have come at a worse time from an economic standpoint for "Sesame Street."
 
Clash Tuesday announced his resignation from the beloved children's show after a second man came forward, alleging in a lawsuit that he had a sexual relationship with the performer when he was a minor. A previous accuser, Sheldon Stephens, was paid a $125,000 settlement by Clash after he recanted similar allegations, but now wants to retract his statement, according to TMZ.com.
"Personal matters have diverted attention away from the important work Sesame Street is doing and I cannot allow it to go on any longer," Clash said in a press release. "I am deeply sorry to be leaving and am looking forward to resolving these personal matters privately."

As I have previously reported, Sesame Workshop, the non-profit that produces "Sesame Street", is struggling financially. The group reported a loss of more than $10.8 million in 2011 and earlier this year announced plans to lay off about a dozen workers, its second staff reduction since 2009.

Sesame Workshop reported more than $132 million in total operating revenue, including $46.9 million in licensing revenue for toys and other merchandise, in 2011. Elmo is by far the show's most popular character and likely accounts for most of these sales. A scandal so close to the holiday season doesn't help sales.

"Sesame Street" toys are made by Hasbro (HAS). In the company's latest quarter, it earned $206 million of its $1.39 billion in revenue from its preschool-aged business. Among the Elmo products it currently sells are Let's Rock Elmo, Elmo's Count-Along Crayons Toy and LOL Elmo.  A company spokesperson couldn't immediately be reached. The show's toys are likely big sellers for Amazon.com (AMZN), Toys `R' Us and other retailers. Not surprisingly, the toymaker is trying to strike an optimistic note.

"Sesame Street and its wonderful characters have been entertaining and educating children and families for more than 40 years," according to a Hasbro statement. "We are confident that Elmo will remain an integral part of Sesame Street and that Sesame Street toys will continue to delight children for years to come."

Sesame Workshop has argued that Elmo is bigger than Kevin Clash, and to a certain extent that's true. Most of the "Sesame Street" young viewers won't be able to tell the difference between Elmo voiced by Clash or another talented performer. The real issue the show faces is with their parents.

To adults, Elmo and Kevin Clash may always be synonymous. This creates a huge problem if the Elmo brand is further tainted by scandal. Elmo has been an integral part of the show for decades. There are countless hours of Elmo content, and the last thing that Sesame Workshop needs is for adults to have negative feelings toward one of its characters. 

Sesame can't erase Elmo from its archives even if wanted to, which I don't think it does. What its needs, however, is create a new character that can win the hearts and minds of the world's children to make people forget about the furry, red monster. The organization has done this before but it's not going to be easy to do it again.

--Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr.

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