Equalisation in the AFL: a modern take
Following the introduction of the salary cap and player draft system in 1986, the Australian Football League has done a great job of restoring the overall level of competitive balance in the competition. Studies by Ross Booth have shown that the level of balance between teams has converged towards a higher level of equality over the past 25 years. Since then, the AFL has taken further steps to help reduce the level of inequality in the league.
One such measure is the proposed luxury tax on football department spending, which will come into play next season. Footy department spending includes any expenses related directly to the football operations of the clubs, with the exception of payments made directly to players, as those payments are already contained within the salary cap. No club outside the top eight for total spending on football department activities has won a premiership since North Melbourne did in 1999. What has transpired is an arms race, with clubs pouring more and more money into spending in hope of gaining a competitive edge. However, the poorer clubs are unable to keep up, hence prompting a call for a tax to be implemented.
The luxury tax will likely settle upon a 75 per cent tax on every dollar spent over the projected industry average, with the maximum amount payable capped at one million dollars per season. A total tax liability cap of $1 million may lead to great discrepancy between the top and middle tier teams. For example, the effective tax rate that a team such as Collingwood, with total revenue of $75 million in 2011, would be much lower than that of Port Adelaide, with total revenue of $41 million in 2013. The AFL had floated alternative solutions, such as implementing a hard cap on spending, however some clubs feared this would stifle enterprise and innovation, leading to its dismissal.
Closely linked to luxury taxes is the notion of revenue sharing. Revenue sharing has been shown to increase the level of competitive balance in sporting leagues. The main form of revenue sharing in the AFL is through the lucrative broadcast rights agreement in excess of $1 billion over five years. However, the taxes gained through the aforementioned luxury tax on spending, as well as taxes on general admission tickets and various other methods are also used to redistribute wealth between clubs.
Several arguments can be made against revenue sharing. Firstly, it can reduce the incentive to invest and innovate. It also creates moral hazard: a team might take on excessive risks in order to gain success, if they believe the burden will fall upon the AFL – and hence the other clubs – to pick up the slack if they fall upon hard times. Recent examples include Melbourne, who messed up numerous draft picks and player developments over several years, resulting in several finishes at the bottom of the ladder. They sacked their coach, CEO, and Football Manager, but the AFL stepped in with a bailout to help partially fund the payout of former coach Mark Neeld, as well as partially paying for the appointment of respected premiership coach Paul Roos. It sets a dangerous precedent, as other clubs may learn to expect some external help if they sack their coach after a poor season.
Yet due to the current structure of the AFL, revenue sharing is essential for a number of clubs to survive. There is a clear gap in support between the big and small clubs in the league – clubs that were historically successful in the first half of the 20th century, such as Carlton, Collingwood, Essendon and Richmond have substantially larger fan bases than those who were not as successful. For example, compare Collingwood’s 78,427 members in 2013 to the Western Bulldog’s 30,209. The difference? 15 premierships to Collingwood (13 of those before 1960), with the Western Bulldogs having their only premiership in 1954. Only Hawthorn has been able to buck the trend and make a shift towards becoming a big club, mostly on the back of sustained success in the 1970s and 1980s.
Secondly, the smaller clubs are significantly disadvantaged when it comes to the fixture. Bigger drawing clubs are given priority on desired timeslots, such as Friday and Saturday, whereas lower drawing clubs are generally given the worst timeslots, such as the Sunday twilight game. For example, in 2014 Melbourne was given no Friday night games in comparison to Carlton’s six. The AFL has acknowledged that the fixture is intended to maximise attendance and television ratings. If they want to go down this path, however, they have to compensate the lesser clubs for their lack of exposure to the prime time. Without this, the bottom clubs would simply not be able to survive.
In recent times, there have been some glaring issues with the player draft system. The priority pick system, where clubs that won less than four games in two consecutive seasons were given an extra first round pick, created perverse incentives for tanking, whereby losing games of football would be beneficial for those clubs in the long run as they would gain an extra high quality young player. This has since been removed, with priority picks only being given at the AFL’s discretion. Other issues, such as clubs being able to have first choice on players through the father/son rule, have created inefficiencies where clubs are underpaying for quality players – such as Gary Ablett Jnr, one of the greatest players of the modern era, being selected at pick number 40 by Geelong in 2001, going on to play in two premierships and win two Brownlow medals.
Perhaps the most significant issue at the moment is inconsistency in the salary cap. As of the 2014 season, the standard salary cap is $9,630,000. However, the two newest clubs, Gold Coast and Greater Western Sydney have a higher salary cap than the rest of the competition, with $9,880,000 and $10,344,000 respectively. Similar concessions were given to the newly formed Brisbane Lions in the late 1990s/early 2000s, which caused a significant uproar after they won three premierships in a row from 2001 to 2003.
Furthermore, the Sydney Swans are allowed to pay an extra 9.8 per cent to each player’s contract, as a “cost of living allowance”, which is outside the cap. This is a fixed amount though, and does not change as the cost of living changes between seasons. During the 2013 season, Perth was determined to be the most expensive city in the southern hemisphere. Despite this, the teams from Perth were not given any concessions for the cost of living. It would be more apt to call it anything but a cost of living allowance, and significant criticism has been directed at the AFL for these concessions. The AFL has since decided to scrap the allowance.
The AFL has made significant progress towards the aim of equalisation, but there are still gains to be made. The unequal fixture is in my opinion the biggest blight on the game at present. In my view, an uncompromised draft and salary cap, sharing of television revenue, and a draw (not a fixture) where each team plays the other once each season, with equal sharing of primetime spots would be the best way for the AFL to ensure the long-term survival and prosperity of the competition and its clubs.