We had a Gotland cross with the same problem. We sheared around it, cleaned thoroughly with non-sting antiseptic, sprayed with blue spray and Crovect, around but not on the penis or sheath. We continued to watch and clean as necessary for a few days. The cause was, as someone said, dribbly pee, which had stuck together in a browny mat, hardened then rubbed against the sheath, causing some infection.
Now, we always check our breeding rams around that area a month or so before they work (don't think the ewes would like such a thing used on them, and might be too painful for the tup to perform). Also when judging or buying tups we check that bit carefully. It's worth checking all your male sheep's penis and sheath every time you tip them, for feet etc. Just the same as you check the udder of every ewe when she's sat on her bum.