The Australian Football League's Recent Progress: A Study In Cartel Conduct And Monopoly Power

Sport Management Review,2005,8,95-117 02005 SMAANZ

The Australian Football League's Recent Progress: A Study In Cartel Conduct And Monopoly Power Bob Stewart Victoria University

Matthew Nicholson Victoria University

Geoff Dickson Auckland University o f Technology

Over the last twenty-five years, the Australian Football League (AFL), and its predecessor, the Victorian Football League (VFL) has become a central feature of the Australian sporting landscape by creating and managing a national competition. However, in the 1980s it was a Melbourne-based league facing serious structural and financial problems as player costs exploded. At the same time, a number of clubs were unable to trade profitably, and the richer clubs were toying with the idea of forming a break-away competition. The transformation of the AFL from a parochial suburban competition to heavily commercialised national league is analysed through the prism of cartel structure and conduct. It is concluded that first, even in its previous guise as the VFL, it adopted many cartellike features, including controls over player transfers, fixed admission prices, and gate equalisation policies. Second, the establishment of a governing Commission in 1984 strengthened its monopoly power, and enabled it to set a singular vision for the game's development. This vision, in turn, enabled the AFL to create a national participation program that became the envy of every other sport association in Australia. Third, in achieving this outcome, the AFL tightened its authority over its member

Bob Stewart and Matthew Nicholson are with the School of Human Movement, Recreation and Performance at Victoria University, Melbourne, Australia. Geoff Dickson is with the Division of Sport and Recreation, Auckland University of Technology, Auckland, New Zealand. Email for Bob Stewart is [email protected]

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teams, administrators, coaches and players. Finally, within this cartel arrangement, member clubs surrendered their autonomy in return for an assurance that they would share the benefits from the AFL's growth and national expansion. In short, the AFL has strategically exploited its cartel features and monopoly power to become Australia's dominant sports league.

By a range of measures, such as total league revenue, broadcast fee income, game attendance, and television ratings, the Australian Football League (AFL) has been Australia's most successful sports league. However, in 1980, in its earlier form as the Victorian Football league (VFL) it faced an uncertain future as a parochial, Melbourne-based competition. Over the following twenty-five years it re-invented itself many times over, and by 2004 had shed most of its suburban traditions, consolidated itself as a national competition, and embedded the game in the hearts and minds of sport fans throughout Australia (Hess & Stewart, 1998). Over the same time, the AFL strengthened its hold over its member clubs through a combination of coercive rules and financial incentives. It also broadened its control over administrators, umpires, coaches, and players through an array of contracts, agreements, and codes of conduct. As a result of these developments, the AFL not only achieved its goal of national expansion, but also become one of the most tightly organised and internally regulated sport leagues in the world (Greenfield & Osborn, 2001). There has been very little analysis of the national expansion and policy shifts of the VFL and AFL in the last decades of the twentieth century. Stewart's (1985) review of the VFL was an early attempt to map the developmental stages in the post-World War I1 era, while the work of Linnell(1995), Nadel(1998) and Andrews (2000) investigated the commercialisation of the VFL and its structural and cultural tensions. This paper aims to fill an empirical gap by evaluating the policies and strategies that were employed by the AFL to achieve its national development aspirations.

Sport Cartels This analysis of the AFL's polices and strategies and current standing is framed by the proposition that the AFL, like many other professional sport leagues (especially those in the USA), operates as a joint venture or cartel (Adams & Brock, 1997; Sandy, Sloane, & Rosentraub, 2004). A cartel is a "collective of firms who by agreement, act as a single supplier to a market" (Downward & Dawson, 2000), and in doing so, pursues a number of joint policies (Koch, 1986). As a result, cartels are able to minimise competition, restrict the entry of new firms, control the supply

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and cost of their products, co-ordinate advertising and promotion, set prices, and most fundamentally, protect the interests of member organisations (Adams & Brock, 1997; Bobrow & Kudrie, 1976; Shepherd, 1990). The incentive to form a cartel can be strong, since by eliminating, or at least constraining competition, it can increase revenue and profits for member firms (Schofield, 1993). However, the success and effectiveness of a cartel hinges on its ability to restrict the conduct of its members (Koch, 1986).And, in order to secure member compliance, cartels will normally impose sanctions and penalties for the violation of its rules and regulations (Shepherd, 1990). In most countries cartels are illegal, since they act against the public interest by increasing monopoly power and limiting competition (National Competition Council, 1999). Trade practices legislation aims to break up cartel behaviour by prohibiting collusive behaviour by firms in the same industry (Mixon, 1996). In Australia, section 45 of the Trade Practices Act 1974 prohibits conduct that denies new firms entry into an industry, prohibits mergers and takeovers that will substantially reduce competition, and prohibits suppliers agreeing to fix prices (Steinwall, 2004). The main features of cartels are listed in Table 1. Table 1: Core features of a cartel Regulatory feature

Business application

Decisions on cartel composition

Erection of high entry barriers in order to control competition

Decisions on the spread of the cartel

Relocation /merger of firms to expand markets and reduce competition

Control over input and labour costs

Exclusive arrangements with suppliers and internal labour markets

Control over prices

Fixed wholesale and retail prices to guarantee mark-up

Decisions on growth maximisation

Enter new markets in order to expand sales

Decisions on revenue sharing and income

Guaranteed minimum income for cartel

distribution

members to secure compliance

Sports leagues have a natural tendency to adopt cartel-like behaviour since they depend upon the cooperation of teams to ensure aproper and viable competition. This is particularly evident in the evolution ofprofessional sport leagues in basketball, baseball, ice hockey and football in the USA (Davenport, 1969; Demrnert, 1973; Gratton & Taylor, 1986, 1991; Jennett, 1984; Koch, 1986; Neale, 1964; Noll, 1977, 2003; Schofield, 1982; Sloane, 1991; Szymanski & Kuypers, 1999). While member

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teams will be highly competitive, and primarily concerned with on-field dominance, they also understand that their long-term viability depends on a high quality and well balanced competition where teams are of comparable strength and ability (Sloane, 1991).Therefore, for a sport cartel to operate effectively, it must be able to implement and enforce policies which, by constraining member behaviours, maximises the league's public appeal and long-run sustainability (Szymanski & Kuypers, 1999). This means that the league will formulate rules that control the conduct of teams, administrators, players and coaches (Freedman, 1987; Sage, 1998). These rules will determine the number of competing teams, the length of the playing season, and the design of the fixtures. In business terms this equates with deciding on the production units and their levels of production. Decisions also have to be made on the location of teams, which in the language of business refers to the spread of production units. In addition, rules will be established to do recruitment and induction of players, which means that they will aim to control input allocation. Decisions will be made on admission charges and prices, and finally, decisions will be made on the pooling of revenue, how it will be shared, and what guidelines will be used to distribute it amongst the cartel members (Cairns, Jennett, & Sloane, 1986). Sport cartels adopt structures, policies and strategies that have the following characteristics. First, they contain a centralised decision making organisation that regulates constituent teams and clubs, and disciplines members who breach the league's rules and regulations (Sloane, 1980).This is a core requirement, since cartels are, by their very nature, concerned with behaving as if they were single enterprises (Shepherd, 1990). Second, they aim to expand profits by imposing various cost minimisation regulations. These regulations include rules that restrict competitive bidding for players and set ceilings on total player wage payments. Third, they aim to increase revenue by extending the market for their sporting product, improving its overall attractiveness, and generally improving the community standing and status of the league. The market can be expanded by admitting new teams to the league, extending the playing season, or playing games at different times of the week (Quirk & Fort, 1999). Sport cartels can improve product attractiveness in a number of ways (Schofield, 1982). One approach is to improve the absolute quality of the game, which may involve the development of player skills, making stadiums more comfortable, and securing safer and more predictable playing surfaces (Demmert, 1973). An alternative approach is to improve the relative quality of the game, which involves making sure that the outcomes of games are uncertain (Noll, 2003). Uncertain outcomes, often referred to as competitive balance, can be achieved by drafting the best recruits to the worst performing clubs every year, and by redistributing league income so that all member-teams can afford the minimum standard of administration, coaching, and sport science support. The additional imposition of salary caps can also improve competitive balance in some situations (Booth, 2000).

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The league's community standing and status can b e heightened by centralised advertising and promotion campaigns that aim to improve the integrity, public image, and overall reputation of the sport (Jennett, 1984). In this instance, rules are put in place to regulate the conduct and behaviour of team administrators, coaches, and players. Finally, sport cartels use their monopoly power to maximise broadcast rights fees. This involves negotiating as a single entity, and avoiding any arrangement that allocates the rights to individual teams (Dernrnert, 1973; Vamplew, 1988). The core policies, rules and strategies that characterise sport cartels are listed in Table 2.

Table 2: Policy and Strategy Issues for a Sport Cartel Policy typelstrategic focus

Examples and Cases

Policies for managing league structure, composition, and team location

Admit new teams into league, provide incentives for clubs to merge or re-locate, set league fixtures and playing schedules.

Policies to prevent the entry of rival leagues

Establish long-term contracts with media organisations, stadia owners, and star players.

Policies for increasing relative game quality and improving competitive balance

Establish recruiting zones, create player draft, implement salary caps and player wage ceilings.

Policies to regulate league costs

Design regulated player transfer market, implement salary caps and wage ceilings for member club staff.

Policies to regulate league prices

Control admission prices, set prices for league merchandise and publications.

Policies for increasing absolute game quality and improving general appeal of game to public

Develop programs to optimise player skill and abilities, improve spectator facilities and stadium desim. refine rules of game

Policies to ensure the reputation of the gamefleague

Design rules to protect the good name of the game, implement codes of conduct for players, and rules to restrict public comments of officials.

Policies for expanding the market for the game

Conduct centralised promotional and advertising campaigns, manage player participation and game development vrograms.

Policies for maximising broadcast Be the sole supplier of broadcast rights to television right agreements and radio stations. Policies for redistributing revenue Pool TV rights and redistribute to member clubs, implement income equalisation schemes. Policies for increasing revenue streams

Sell brand name and logo to merchandisers, sell advertising and uromotional svace to suonsors.

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In short, a sport cartel will not only have a high degree of discretionary decision-making and monopoly power, it will use it to regulate members, reduce inter-team competition for resources, control costs and increase league revenue (Fleisher, Goff, & Tollison, 1992; Fort, 2003; Li, Hofacre, & Mahony, 2001). But, unlike more traditional industries, the sport industry is often allowed by government to pursue what are effectively anti-competitive practices (Szyrnanski, 2003). This occurs because there is tacit agreement that a variety of restrictive practices are essential for the sport league to sustain its public interest and long-term viability (Dobson & Goddard, 200 1). In other words, it is argued that a completely unregulated sport league will be unsustainable since a few clubs will use their superior fan and revenue base to capture the best players and dominate the competition. This argument claims that, while the resulting conduct may be anti-competitive (or a restraint of trade), it is not unreasonable, nor is it against the public interest (Ross, 2003). Unlike the world of commerce and industry, it is argued that sports leagues perform poorly under competitive, or free market conditions, and some form of self regulation is essential to produce the outcome uncertainty that attracts fans, sponsors, and media interests (Szymanski & Kuypers, 1999). Ultimately, however, the primary beneficiaries of this regulation are the leagues themselves (Sage, 1998). In the remainder of this paper we will examine the recent performance of the AFL through the prism of cartel structure and conduct. In doing this, we will use the sport cartel template illustrated in Table 2 to address the following questions. First, to what extent has the AFL established structures that enable it to govern its affairs, and to regulate the conduct of member teams as if it was a single entity? Second, how successful has the AFL been in reorganising the competition so that it can capture new markets, and attract new fans? Third, has the AFL been able to increase its revenue base by both broadening and deepening its income steams. In particular, how successful has the AFL been in negotiating broadcast rights fees by acting as a single entity, in contrast to allocating the negotiating rights to each club? Fourth, in what way has the AFL been able to control costs by fixing player wage bills and operational expenses, and to fix prices by setting common admission and merchandise prices? Fifth, in what ways has the AFL managed demand by influencing game quality, where quality had both an absolute dimension (the competition has many star players and comfortable venues) and a relative dimension (games are exciting where the outcome is uncertain)? Moreover, in this context, to what extent has the AFL used rules, agreements and threats to engineer the behaviour of administrators, coaches and player to protect the good name and reputation of the game? Finally, what schemes have been put in place to pool income and redistribute it to ensure a guaranteed minimum income for member teams?

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AFL Governance The VFL, from which the AFL emerged, was formed in 1897. It expanded during the 1920s, and by 1980 had become a strong competition of twelve teams (Stewart, 1984). Throughout the post-WWII period the VFL was governed by a Board of Directors that comprised delegates from each of the twelve clubs, with the day-today management conducted by a central administration (Victorian Football League, 1981). During the early 1980s the VFL faced many threats and problems. The South Melbourne club, which relocated to Sydney in 1982 in order to avoid liquidation, was finding it difficult to attract a viable fan base, attendances were falling, and eight of the twelve clubs were technically bankrupt as a result of exploding player payments. A majority of clubs were "perilously close to disappearing" (Linnell, 1995, p. 15). Two influential reports commissioned by the VFL in the mid 1980s (VFL Task Force, 1984, 1985) were the catalysts for a major restructuring of the League. It was clear that a system of governance that relied on member clubs nominating delegates to the Board was inappropriate in such a turbulent environment, and would undermine a broad analysis of structural and locational issues (Shilbury, 1994). In late 1985 the VFL Board of Directors was replaced by a football Commission to be elected by member clubs (Nadel, 1998). The Commission's strategic parameters were subsequently framed by an internal report entitled Establishing the Basis For Future Success, which outlined the way in which the Commission could operate (VFL Commission, 1985). This Commission structure has continued to the present day, and has been used to provide centralised decision-making, single-minded direction, and a set of "rules and regulations (by which the clubs have to) abide" (Victorian Football League, 1986, p. 5).

League Structure And Composition National expansion of the VFL was first put on the agenda in the early 1980s (Sandercock & Turner, 1981). Soccer was considered a threat to Australian football, and by the mid 1980s the new Commission became aware that the New South Wales Rugby League (NSWRL) competition, after many years of neglect, had increased its public support and reach. It had already admitted teams from the Australian Capital Temtory (ACT) and Wollongong, and was investigating the possibility of admitting teams from the Gold Coast and Brisbane, which it did in 1987. The Commission report, Establishing the Basis For Future Success, recommended some form of interstate expansion as a way of both managing the threats from soccer and

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rugby, and extending the reach of the VFL beyond Melbourne and Sydney (VFL Commission, 1985). It was subsequently agreed to establish VFL clubs in Brisbane (Brisbane Bears) and Perth (West Coast Eagles), thus producing a fourteen-team competition covering four of Australia's seven states. The Commission's national ambitions led to the Adelaide Crows being admitted in 1991, and the Fremantle Dockers in 1995. These were strategically important decisions, since they provided a better national balance, curbed the growing financial dominance of the West Coast Eagles, and reduced the impact of rugby league decisions to locate teams in Adelaide and Perth. In 1997 Port Power, a second Adelaide club was admitted to the league, which coincided with the merger of Fitzroy and Brisbane. This created a sixteen-team competition covering five states, which continues through to the present day. The current league structure is a radical shift from the parochial Melbournebased competition of 1980. Moreover, its emergence would have been highly unlikely under the club-centred model of the early 1980s where the vested interests of member clubs usually over-rode the more general interests of the league (VFL Task Force, 1984). The Commission's tightly controlled cartel structure allowed a more contextualised management model to emerge, in which the interests of the league as a whole were of primary concern (Australian Football League, 2001). Support from existing member clubs for the national expansion was reinforced by the distribution of the $4 million licence fee paid by newly admitted clubs.

Scheduling Of Games The Commission's centralised control also allowed further restructuring to occur at the end of 1990 when the VFL changed its name to the Australian Football League. This was of great symbolic significance since it signified the intention of the Commission to continue to pursue its national expansion goal. It was also accompanied by a plan to improve the quality of the competition by rationalising the use of playing venues, upgrading facilities and playing games over the whole weekend as a way of giving broadcasters greater programming opportunities. By 1989 Sunday football received Victorian State government approval, and the MCG (Melbourne Cricket Ground), home venue for Melbourne and Richmond, progressively became the home venue for North Melbourne and Essendon, and a major venue for Footscray and Collingwood. With the construction of the Docklands stadium in 2000 (which was recently re-named Telstra Dome) further relocations and rescheduling occurred. In 2005 it is llkely that the MCG and Telstra Dome will be the only Melbourne venues to regularly host AFL fixtures. These relocations demonstrate how the Commission used its monopoly power to engineer a change in the supply of games in order to increase total revenue.

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Ensuring A Level Playing Field The AFL also used its cartel structure and monopoly power to implement a raft of policies to achieve a balanced competition. These policies were underpinned by the assumption that fans prefer contests where the outcome is uncertain, and where no one team or teams dominate the competition (Quirk & Fort, 1992; Sandy et al., 2004). The AFL, and before it the VFL, used an array of policies to achieve competitive balance (Booth, 2000,2004). In the early 1980s, players were regulated by rules that tied them to their club until such time the club decided to grant a transfer. This master-servant relationship was reinforced by a geographic zoning system that tied all likely recruits to a specific club. It was consequently feared that these policies were an illegal restraint of trade which stopped players from playing for their club of choice, and prevented them from getting a fair return for their playing skills (Stewart, 1985). The Tutty case of 1971, where the New South Wales Rugby League player transfer rules were upheld, suggested that if the VFL rules on player transfer were to be tested in the courts, they too would be found to be an unreasonable restraint of trade, and therefore illegal. In 1983 Silvio Foschino challenged the VFL's player transfer policy in the Victorian Supreme Court (Nadel, 1998). Justice Crocket concluded that the VFL's clearance, transfer and zoning rules were an unreasonable restraint of trade, and recommended their replacement by a system of player drafts and contracts. Over the next six years player transfer rules were gradually amended so that by 1986 a national player draft was in place (Booth, 2000). Player transfer fees were removed and player lists were reduced, all of which stabilised the cost structure of clubs, but gave players little choice as to where they would like to play. The national draft has since become an integral component of the AFL's operations, and is sustained by the belief that the best way of ensuring a level playing field is to establish coercive rules for allocating playing talent evenly between member teams (Booth, 2004).

Control Over Player Costs Player payments have also been a vexing issue for the AFL. Rules for containing player payments were first established by the VFL in 1930, when a maximum wage was implemented. However, the Coulter Law, as it was colloquially called, was flouted so often during the 1970s that escalating player wages had undermined the financial viability of many clubs. A combination of ever increasing match payments and transfer fees created a cost structure for clubs that raced ahead of their incomes. Whereas it cost $93,000 to field a competitive VFL team in 1968, by 1978 it had risen to $900,000 (Stewart, 1984).

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In the aftermath of the Foschini case, players were able to negotiate their employment conditions with clubs. To protect the league against a wage-cost explosion, a salary cap was introduced in late 1984, which was modelled on the American National Basketball Association (NBA) wage ceiling policy of 1983. The cap not only constrained the player wage costs of member clubs, but also helped redistribute playing talent more evenly. The salary cap subsequently became the pivotal strategy for controlling player payments. In 1983 it was set at $0.5 million per member team, but since then has steadily increased. In 1996 it was $2.5 million, and is now $6 million per team. The Commission sets the salary cap (which it recently retitled Total Player Payments) on the basis of movements in broadcast rights fees, revenue from finals games, and club membership income. This means that the salary cap will increase in line with the league's revenue, and by implication, the club's capacity to pay (Australian Football League, 2003a). The scale of the expansion in player payments is illustrated in Table 3. While the salary cap did not significantly constrain the growth of player payments, it dampened the bargaining strength of recruits, and eliminated the player hoarding by rich clubs that occurred in the 1970s and early 1980s. Table 3: Payments to AFL Players: 1980-2002 Year

1980

Salary cap

Average player

% of players earning

($ million)

earnings

more than $100,000

Not applicable

$11,000

0%

Source:AFL Annual Reports 1981-2003

The AFL Commission has also implemented an array of sanctions that impose penalties on clubs that breach the salary cap provisions. In 2002, Carlton, Richmond, Fremantle, and St Kilda were all found to have breached the salary cap, and were penalised through a combination of fines and denial of national draft choices. The Carlton club, having incurred three breaches since 1998, lost both its priority and number-one draft choices for the following season, and was fined $930,000 (Australian Football League, 2003a). These harsh penalties were imposed to not only negate the advantage Carlton obtained by exceeding the salary cap, but to also warn other clubs of the costs of not adhering to the salary cap rules.

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Improving Absolute Game Quality The Commission, by virtue of its cartel structure and monopoly power, has been able to develop policies and strategies for improving the overall quality of the game. From the 1990s, the AFL used sport science and improved technologies to develop the skills and athleticism ofplayers. Just as there had been an increase in the corporate logic that dominated off-field decision-making in the AFL, a similar scientific logic underpinned the development of the on-field side of the AFL. The game became faster with the players being taller, heavier, and possessing a greater aerobic capacity than before (Norton, Craig, & Olds, 1999). Sport science, underpinned by physiology, biomechanics, and psychology, became an integral part of the AFL landscape. Most clubs also outsourced the collection of player statistics to private companies with specialist computer software that allowed coaches to monitor player and team trends in real time. Tactically, the game advanced considerably, which resulted in an increase in the number of hll-time assistant coaches. Injury prevention and management also received more attention than it had in the past. The AFL Medical Officers Association has maintained a database of injuries during the regular season since 1992. The AFL Research Board, established in 1999, provides research funding for research related to injury prevention, coaching, development and performance in Australian football. It is estimated the AFL clubs each spend $lmillion annually on staff salaries, diagnostic services, surgery, equipment and facilities (Larkins, 2004). Health professionals employed by AFL clubs include masseurs, doctors, orthopaedic surgeons, plastics surgeons, dentists, podiatrists, nutritionists, and physiotherapists. One of the few areas ofAFL operations that falls back on traditional practices is the tribunal. Players appearing at AFL tribunal hearings are not permitted legal representation, although an advocate is permitted. This remains perhaps the only dlrnension of AFL football where the use of professionals is prohibited. However, the use of biomechanical experts has recently become a feature of players' defences at the AFL tribunal (Farrow & Kemp, 2003). The same innovative approach has been applied to stadium development. The pivotal place of the MCG in the national league was reinforced in 1992 when its $150 million Great Southern Stand was completed. Although the new stand reduced the ground capacity from 105,000 to 97,000, it provided comfortable new seating and outstanding sight lines for nearly 50,000 fans. These improvements were instrumental in increasing the average MCG match day attendance from 25,000 to more than 40,000 during the next few years (Australian Football League, 1998). Stadium redevelopment peaked in the late 1990s when the AFL became involved in the construction of a new state-of-the-art stadium in Melbourne's inner west Docklands precinct. This was a risky decision since it made the Waverley stadium in Melbourne's outer eastern suburbs redundant, and also because it was

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expensive, and funded through a consortium of businesses. By the same token, the $450 million stadium was superbly designed and fitted out. This strategy can be seen as an attempt to get more paying customers into the ground, and to improve the absolute game quality by providing superior playing conditions. This initially backfired with lower than expected attendance as a result of poor turf management and lengthy queuing for games because of new ticketing arrangements that involved ticket purchases prior to the game. However, over the last two years fans have adjusted to the Telstra Dome's features, and average attendances now rival those of the MCG (Australian Football League, 2003a).

Developing The Brand Although the AFL expanded its fan base substantially during the 1980s and early 1990s, it was aware of the growing national presence of rugby league (Nadel, 1998). It was particularly aware of how rugby league's cleverly constructed marketing campaigns during the early 1990s had increased the game's national profile. The Australian Rugby League's Tina Turner promotional campaign, which began in 1989, aimed to soften the game's hyper-masculine, blue collar image by selling the game's sociability and excitement to a white-collar audience (Foster, 1989). By contrast, the AFL had historically let the media promote the game through its game reporting (Roberts, 2001). But all this changed in 1993 when it contracted the leading advertising agency, Campaign Palace, to design a promotional campaign that would not only up-date the game's public image, but also capture the attention of people with little exposure to the traditions of Australian football. The campaign brief was to promote the AFL as a national game, and gear it heavily to New South Wales and Queensland. To this end it was also important to avoid the easy route of asking parochial Victorians "to talk about how good the game was" (Francis, 2000, p. 2). Instead it was decided to feature overseas athletes and celebrities who would express congratulatory amazement about some aspect of the game using the tag line "I'd like to see that". In one feature, Russian cosmonaut, Sergei Avdeev, said "Australia launching men into space every few minutes? I'd like to see that". The campaign ran from 1994 to 1998, and by the fourth year had achieved a national recall rate of 97% (Francis, 2000, p. 2). It also coincided with an increase in total season attendance from 4.7 million in 1994 to 6.1 million in 1998. This was followed by the "I was here" campaign in 1999, and the "For the love of the game" campaign in 2002. The Commission used the "For the love of the game" model to highlight the community roots of Australian Rules football, and how the AFL was assisting community football throughout the nation (Australian Football League, 2003a).

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ImprovingThe League's Image And Reputation For a cartel like the AFL, it is not enough to strengthen the brand and extend its exposure. It is also important to use its monopoly power to improve the league's overall standing and reputation in the sport world (Demmert, 1973). This standing and reputation is not only a function of the quality and balance of the competition, the skill of players, and the standard of stadiums. It is also a function of the behaviour of the league's administrators, coaches and players. It is for this reason that the AFL introduced restrictions on player conduct. The lengths the AFL has gone to in order to protect its reputation is revealed in the collective bargaining agreement (CBA) between the Commission and the AFL Players Association (AFLPA), which covers all issues related to players and their performance. The most recent collective bargaining agreement (2003-2008) includes sections on player payments, injury and veteran lists, contracts, use of player images and choice of player footwear. The Commission helps fund the implementation of AFLPA programs, and in 2003 allocated $5 million to support a broad range of professional development and player welfare programs, including the provision for players in their retirement (Australian Football League, 2003b). The CBA also incorporates a code of conduct, which has been jointly formulated by the Commission, AFLPA, and member clubs. The purpose of the code is to "promote and strengthen the good reputation of Australian Rules football, the AFL competition, AFL clubs, and players by establishing standards of performance and behaviour for AFL footballers". In addition, it seeks to deter conduct which could have an "adverse affect on the standing and reputation of the game, the AFL, AFLPA, and all participants" (Australian Football League, 2003b, p. 3). The code contains provisions for disciplinary breaches by players. For example, a player that acts in a manner that seriously compromises the integrity and dignity of the AFL and its stakeholders may be fined up to $5,000 for a first offence and up to $10,000 for a second offence. The code is also concerned with the appearance of players and by association, the AFL. Players must wear appropriate apparel during all matches and training sessions or face fines of up to $500. The code not only determines what players are able to do, but also what they are able to say. Section 4.2 of the code states that "AFL players must not make adverse public comments concerning AFL umpires or decisions made by AFL umpires during AFL matches". Similarly, the players "must not make any public comments whatsoever concerning any aspect of an AFL tribunal hearing" (Australian Football League, 2003b, p. 3). The code also covers conduct related to the marketing and promotion of the AFL. The code stipulates which official and promotional events players will be required to attend; failure to attend can result in fines between $250 and $5,000.

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Players may also be required to attend promotional events for the benefit of official sponsors, and they may not enter into an agreement that would result in them promoting or endorsing a product that competes with the AFL's protected sponsors. Again, the player is subject to fines if the code is breached. The code of conduct also incorporates rules and regulations related to doping and racial vilification, which reinforces the AFL's desire to maintain a clean image as well as provide positive role models for both for lower levels of the sport and broader society. The AFL introduced an anti-doping code in 1990 as a result of growing public awareness of the effects of performance enhancing drugs on both the health of athletes and the image and appeal of the competition. The Justin Charles case of 1997, where he tested positive for performance enhancing drugs, provided the catalyst for entrenching the League's anti-doping policy. The AFL recently extended its policy by introducing penalties for the use of illicit recreational drugs. Any player who tests positive for cocaine or ecstasy on match-day can expect a twelve match suspension for the first offence, and a two year suspension for the second. Several incidents of racial abuse during the early 1990s prompted the AFL to develop a strong anti-vilification code, which it implemented in 1995 (Gardiner, 1997). It was the first national sporting body to adopt regulations of this type, and as a result has become recognised as an industry leader. Specifically, the AFL developed "Rule 30", which incorporated a process of education, conciliation and tribunal sanctions. Llke many of the player breaches listed in the code of conduct, offences under Rule 30 can incur fines, in this case up to $20,000 for a first offence and up to $40,000 for any subsequent offences. A club can also be fined up to $50,000 because of the actions of its players.

Expanding Participation By the late 1990s the AFL had achieved all that a successful sport cartel would have imagined. It had used its monopoly power to expand the market, substantially increase its annual revenue and net worth, maintain control over player wages and transfers, achieve competitive balance, and establish codes of conduct that guided the behaviour of players. However, there was a growing concern that while it had managed the national competition very well, it had been less successful in pursuing its role as the keeper of the code, and developing the game in the northern markets of New South Wales, Queensland, and the Northern Territory. In particular, AFL administrators were aware that Queensland and New South Wales would soon be home to more than half of Australia's population. The northern markets were considered integral to a national competition, and the AFL developed a three-part approach to sustain its dominant position in the sporting marketplace.

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The first part aimed to ensure that the Brisbane Lions and Sydney Swans were both financially stable and successful on the field, the second part aimed to ensure greater television exposure of the AFL competition, and the final part involved heavy investment in game development and junior participation. The AFL invested millions of dollars to ensure that the Brisbane Lions/ Brisbane Bears and Sydney Swans remained financially viable and competitive. Both organisations have benefited from draft, salary cap concessions, and direct financial assistance. Although no longer in place (they were opposed by powerful Melbourne AFL clubs (Pierek, 2002; Smith, 2004)), the policies were successful insomuch as Sydney finished second in 1996 and the Brisbane Lions were premiers in 2001, 2002 and 2003. The merger between Fitzroy and Brisbane is the clearest example of the AFL's efforts to ensure the long-term future of the Brisbane AFL licence. When the AFL negotiated its broadcasting agreement in 2001, it made a qualitative demand - how willing was the broadcaster to show-case the AFL competition in primetime in these markets? (Hanna, 2000). For the AFL, it was not just about the amount of money that the broadcaster was willing to pay. The logic was that increased junior participation could be levered on the back of prime time exposure (Le Grand, 2002). The AFL established its Game Development department in 1999, which was responsible for implementingjunior football programs in Victoria, New South Wales, Queensland, the Northern Territory and Tasmania. Some Victorian clubs opposed the increased investment in these markets on the grounds that all member clubs earn this money, and that it should be distributed equally between them, especially given the precarious financial position of some clubs. The Victorian clubs also argued that the Brisbane Lions and Sydney Swans unfairly benefited from the Commission's efforts to develop the New South Wales and Queensland markets, and it would be more appropriate to bolster the game in its traditional heartland. However, the Commission used its healthy financial position following the sale of broadcasting rights and its Waverley Park ground to create "the perfect opportunity to build an infrastructure that will irreversibly establish Aussie Rules as the best football code in the country" (Smith, 2001, p. 48). In 2004, AFL CEO Andrew Demetriou proclaimed "now is not the time to consolidate, now is the time to put the pedal down, and we are going to invest further in NSW and Queensland (Barrett, 2004). When viewed collectively, the three approaches represent a convergence of the AFL's role as "keeper of the code" and manager of the national competition. The AFL was not only intent on controlling member clubs through its cartel structure, but also on managing the overall development of Australian Rules football.

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Managing The Sale Of Broadcasting Rights Television has always had a strong relationship with the AFL, and throughout the 45 years of negotiating broadcast rights, the VFLIAFL has always acted on behalf of member clubs. The AFL was the jewel in the crown of the Seven network's programming, and their relationship created significant corporate synergies. While the AFL praised the breadth and quality of Seven's football coverage, the Seven Network provided saturation levels of promotion for the AFL (Roberts, 2001). The Seven Network valued its relationship with the AFL so highly that in 1998 it agreed to pay the AFL $40 million a year until the end of 2001 for four weeks of pre-season competition and 26 weeks of the premiership league (AFL, 1998). Unlike rugby league, where the Nine Network had board representation on the Australian Rugby League (ARL), the Seven Network had no management interest in the AFL, but it clearly had influence over game scheduling. The network was a prominent member of a consortium that constructed the Docklands (now Telstra Dome) stadium in 1999. Consequently, it was understood that its viability depended on crowd-pulling games being scheduled there, even when the larger MCG was available. In this case, the interests of the Seven Network were not always consistent with the interests of clubs and fans (Andrews, 2000). The Seven Network's relationship with the AFL was severed in December 2000, when a consortium headed by Rupert Murdoch's News Limited secured the broadcast rights to all AFL fixtures for a fee of $500 million over 5 years. This was more than double the previous rights fee, and reflected (1) the huge commercial value of the AFL product, and (2) the AFL's decision to segment the broadcast rights. It was also the most lucrative contract in the history of televised sport in Australia. In a complex arrangement, the rights were spread across one pay TV and two free-to-air providers, namely Foxtel, the Nine Network, and the Ten Network respectively. In addition, Telstra, Australia's leading telecommunication business, acquired the Internet rights to the AFL. In return for a $10 million annual fee, Telstra subsequently managed afl.com.au, the AFL's official web site (Shulze, 2001). This increased rights fee resulted from a competitive bidding process, and Foxtel's aim to secure the only sport brand that could generate larger Pay-TV audiences. The growth in TV broadcast rights income is illustrated in Table 4. In the aftermath to the agreement there were rumblings within member clubs and venue managers like the manager of the MCG that it may be possible to challenge the monopoly power of the Commission over broadcast rights. In Major League Baseball in the USA, member teams negotiate their own local free to air and cable television broadcast rights. However, this format resulted in some clubs obtaining up to a $50 million advantage over rival teams (Australian Football League, 1999~). In typical cartel fashion, the AFL Commission declared its intention to be the sole negotiator so that "the competition as a whole" would benefit, rather than a few powerful clubs (Australian Football League, 1999c, p. 5).

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Table 4: Trends in annual broadcasting rights fees 1980-2002 Agreement year 1980

Fees ($ million)

Fee as % of total Commission revenues

$1

4%

Source: AFL, Annual Reports 1981-2003; Stewart, R (1984) The Aushalian Sport Business, Kenthurst, Kangaroo Press.

Pooling And Redistributing Revenue The VFL and AFL have a history of pooling part of the league revenue and redistributing it, through a system of cross-subsidisation, to member clubs in equal amounts. In the early 1980s 20% of net match proceeds was put into an equalisation fund together with broadcasting rights income and the net proceeds from the final series (Stewart, 1984). Over the ensuing 20 years, the revenue pooling policy was strengthened. By 2004 the pool included all broadcasting rights fees, all corporate hospitality income, the net income from the finals series, and the profits from the Football Record, the league's match day publication. Overall, just under 40% of all revenue from match-day game related activities is pooled and redistributed to member clubs (Australian Football League, 1999b). At the same time, this redistribution accounts for a smaller proportion of club income than it did ten years ago because club revenues have grown more rapidly than has the redistribution pool. The AFL's revenue pooling policy is an example of cartel conduct, and is a powerful tool for controlling the behaviour of member clubs for a number of reasons. While the AFL claims it is not a "banker to the clubs", and does not "guarantee club debts", its pooling policy has allowed a number of member clubs to survive serious financial crises (Australian Football League, 1999a, p. 18). Consequently, the AFL's policy, by protecting weaker clubs, has been able to preserve the viability of the league (Schofield, 1982)

Increasing Revenue The AFL has always aimed to secure additional revenues in order to sustain the viability of the competition, although for most of the AFL's history gate receipts were the dominant income source. For example, in 1980, income from gate receipts

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accounted for 42% of total income, well ahead of club fundraising activities, which accounted for 23% of total income. Other major revenue sources were league and club membership (12%) league and club sponsorships (7%), television and radio rights fees (5%) and merchandising income (4%). Total income for the central administration was estimated to be around $10 million, with average club income at around 1.5 million. Therefore, total league income was close to $28 million (Stewart, 1984). Over the following 25 years League revenue exploded, which in the main reflected its ability to set high admission prices, attract generally increasing at-ground crowds, and generate increasing television audiences. This, in turn, provided lucrative career paths for administrators, coaches and players. By 1990 total Commission revenue was $30 million, and by 2003 had increased to $17 1 million. A large part of this growth came fiom broadcasting rights fees. Broadcasting fees were just under $8 million in 1990, $17 million in 1995 and $100 million in 2003. Sponsorship and merchandising income also increased rapidly over this period, although on a much smaller scale. Club incomes grew at a similar rate. In 1990 average member club income was $4 million, had increased to $8 million in 1995, and escalated to $18 million in 2003. In short, by 2003 total annual league revenues exceeded $400 million, with broadcasting rights fees accounting for 25 % of revenues. The growth in League income and at-ground attendance from 1980 to 2002 are listed in Table 5. Table 5: AFL income and attendances 1980-2002 Year

Commission Revenue

Av. club revenue

Total season attendance

Source: AFL Annual Reports 198 1-2003

Concluding Comments As early as 1985 an internal report noted that the VFL had all the "hallmarks of a sporting cartel" (VFL Task Force, 1985, p. 13). The evidence presented in this paper indicates that as it metamorphosed into the AFL, it strengthened its cartellike structures and monopoly power. In the first place, the establishment of the Commission enabled it to better control its member clubs, regulate fixtures, and pursue its national expansion agenda. Second, it continued to regulate the movement

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of players by replacing its zoning rules with a national player draft. The draft not only ensured an even spread of playing talent across the teams, but because it reduced the competition for players, dampened the ability of young recruits to negotiate a starting salary commensurate with their abilities. Third, it extended its reach over player payments by introducing a salary cap, which effectively established a ceiling on the total player wage bill. Fourth, it used its monopoly power to enhance game quality by improving stadium facilities, rationalising venues, and developing player athleticism and skills. Fifth, it continued to negotiate broadcasting rights as a single entity. Sixth, it introduced an array of coercive agreements and codes of conduct that increasingly constrained the behaviour of administrators, players and coaches as a way of maintaining the reputation of the league. Finally, it increasingly pooled League income and redistributed it to member clubs to ensure they had a guaranteed minimum income to sustain their financial viability. This is not to say the AFL was problem-free. Despite its national expansion, growth in revenue, and revenue pooling policy, some of its member-clubs are still close to insolvency. In addition, mergers of Melbourne clubs have not occurred, and there is still an unhealthy concentration of teams in Melbourne. In a number of recent statements the AFL has indicated that it does not intend to reduce the number of teams in the national competition, which undermines previous arguments that Melbourne could not sustain nine teams. It is hard to see nine Melbourne teams surviving in a league where operating costs are likely to escalate. A number of Melbourne teams have a relatively low membership base and a small national support base. This problem will only be compounded over the next 5-10 years as the major urban centres in New South Wales and Queensland grow rapidly (Nicholson, 2004). Their survival depends on their ability to attract new members, and the continuing contribution of television broadcasting rights fees. Further, the rate of change imposed by the Commission has traumatised some clubs and fans. Despite Footscray's successful 1989 campaign to resist a merger with Fitzroy, there have been insidious pressures on some clubs to either relocate or merge. In fact, a summit was held in 1995 at which the Commission announced a $4 million incentive package for clubs to merge. By the 1996 season the pressures on Fitzroy to merge with another club became enormous (Nicholson, 2002). Fitzroy was forced to amalgamate with Brisbane as a result of a combination of its chronic financial difficulties and its inability to field a competitive team. The Hawthorn Hawks-Melbourne Demons merger proposal of 1996 also created severe trauma for their members, and was ultimately defeated by supporters and ex-players. It is difficult to foresee any future merger occurring without massive loss of goodwill and fan support. In addition, players are still tightly constrained by a plethora of rules and regulations that would not be tolerated in most occupations. Finally, some club chief executive officers have a very insecure tenure and therefore cannot plan effectively, and the game's international status is problematic.

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