THE ECONOMICS OF ACHIEVING COMPETITIVE BALANCE IN THE AUSTRALIAN FOOTBALL LEAGUE, 1897–2004

Abstract

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 constraint) 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.