The economics of achieving competitive balance in the Australian football league, 1897-2004

Economic Papers (Economic Society of Australia), Dec, 2004 by Ross Booth

This paper summarises some key aspects of a theoretical and empirical analysis of whether various labour market devices and revenue-sharing rules used in the Victorian Football League/Australian Football League (VFL/AFL) since its inception in 1897 have increased competitive balance by reducing the inequality in the distribution of player talent between clubs. The history of labour market intervention and revenue sharing in the VFL/AFL is discussed, with six different periods between 1897 and 2004 identified for analysis. Fort and Quirk's (1995) model of US professional team sports leagues is used to analyse the effectiveness of the various devices that have been used in the VFL/AFL, but only after adapting the model to allow for VFL/AFL clubs being win maximisers (subject to a budget constrain) rather than profit maximisers. The various devices used by the VFL/AFL are assessed in terms of their likely impact on competitive balance, with some significantly different theoretical predictions than under profit maximisation. It is found that free agency results in a less equal distribution of player talent under win maximisation, whilst both gate sharing and increases in shared league-revenue tend to equalise playing strengths (which is not the case under profit maximisation). Moreover, the invariance principle, that the effect of a player draft will be undermined by the sale (and/or trade) of player talent, is found not necessarily to hold under win maximisation and can be reduced or eliminated with a team salary cap. Whether the trade of players and draft choices can undermine a player draft is also considered. The conclusion reached is that a player draft, a team salary cap, and revenue sharing is the combination most likely to succeed in achieving higher levels' of competitive balance. The evidence of competitive balance in the VFL/AFL is' consistent with these predictions.

Keywords: Australian Football League; Player draft; Salary cap, Competitive balance, Revenue sharing

JEL Code: L83

1 Introduction

The Victorian Football Association (VFA) was formed in Melbourne in 1877. In 1896, eight of the original VFA clubs broke away to form the Victorian Football League (VFL) and the first season of competition was played in 1897. Over time, the number of VFL clubs in Melbourne grew and in the 1980s and 1990s clubs from cities outside Victoria were admitted. This necessitated an official name change at the end of 1989 to reflect the expansion of the former Victorian-based competition into a national competition. From 1990, the competition has been known as the Australian Football League (AFL).

The VFL began with eight clubs: Carlton; Collingwood; Essendon; Fitzroy; Geelong; Melbourne; St Kilda; and South Melbourne. Seven of these clubs were based in the Melbourne metropolitan area with Geelong located about 75 kilometres southwest of Melbourne. Richmond and University (of Melbourne) were admitted in 1908, but University disbanded before the start of the 1915 season. During WWI the number of clubs fell to four in 1916, increased to six in 1917, eight in 1918, and nine in 1919. In 1925, Footscray, Hawthorn, and North Melbourne joined to make a twelve-team competition that continued until 1987, except for Geelong's withdrawal during WWII in 1942 and 1943. South Melbourne moved to Sydney for the 1982 season and became Sydney (Swans) in 1983. Though strong state-based football competitions had long existed in Adelaide (the South Australian National Football League: SANFL) and Perth, (the West Australian Football League; WAFL), it was the VFL that expanded nationally with the inclusion of the Brisbane Bears and the Perth-based West Coast (Eagles) in 1987, Adelaide in 1991, and Fremantle in 1995, making a league of sixteen teams. In 1997 Port Adelaide joined the AFL, while the formation of the Brisbane Lions as a merger of the Brisbane Bears and Fitzroy kept the number of clubs at sixteen. In addition, two Victorian clubs have changed trading names in an attempt to become more attractive to (national) spectators and corporate sponsors. Footscray began trading as the Western Bulldogs in 1997 and in 1999 North Melbourne became the Kangaroos.

When I was a teenager in northern Victoria in the 1960s, it was not uncommon for local Australian Rules footballers to be enticed to try their luck with a club in Melbourne in the VFL/AFL. In 1968 country zoning was introduced and local Murray League players were 'zoned' to the Geelong Football Club. According to football folklore, these devices were necessary to help even up the competition by preventing the wealthy VFL/AFL clubs from procuring the majority of the best 'country' players. In the mid-to-late 1980s the VFL/AFL replaced the widespread system of (Victorian) metropolitan and country zoning first with a team salary cap, and then combined it with a (national) player draft. The VFL/AFL suggested these new devices were necessary to even up the competition (and to ensure financial viability of the VFL/AFL clubs). Intuitively, I could understand the desire by the VFL/AFL to want to even up the competition, but not why it felt the need for both a player draft and a team salary cap. I became interested in whether either or both of these devices had contributed to what I perceived as an 'evening-up of the competition' (an improvement in competitive balance) in the VFL/AFL.