It could be hole in head disease that has gotten a secondary infection. I've seen this a few times with the larger cichlids. I had a jaguar (managuense) that survived it twice before I got him. Mind you, just hole in the head won't look infected, but I'm seriously thinking your guy has a secondary infection.
Hole in the Head by Adam Dagna of World Cichlids
Or it could be because he is a male (obvious because of the male head bump) he knocked it against something and it has gotten infected.
Either way, without a better pic it's hard to tell for sure, but I'm betting a serious infection has set it.