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A pay deal both the AFL and players can get behind

A combination of revenue sharing and fixed salaries offers a good compromise for players and the AFL. Flickr/lensfodder

To share or not to share – that is the question of moment in the AFL.

The AFL Players’ Association (AFLPA) appears determined that player payments should be a percentage of league revenue.

The AFL administration seems implacably opposed to this idea.Why should this matter so much to AFL players?

At first look it might seem that it shouldn’t matter at all – that there is no difference between getting paid a percentage of revenue and getting paid a fixed amount of money.

For example, suppose it is known that AFL revenue in the next year will be $500 million. Then it won’t make any difference whether the players and AFL agree that player payments should be 25% of league revenue or should be $125 million.

In the end it is the same amount of money either way.

What this argument misses is that future league revenues are never known with certainty. AFL revenue might be $500 million next year, or it might be $550 million.

Getting a percentage of league revenue has the advantage for players that it guarantees they share in the benefits of unanticipated revenue growth.

With a 25% share, players get an extra $12.5 million if league revenue turns out to be $550 million, but nothing extra if they had agreed to the fixed amount of $125 million.

Of course, there is also a potential downside to receiving a percentage of revenue. If league revenue is lower than anticipated, then player payments fall compared to a fixed amount.

One gets the impression that the players think that unanticipated revenue growth is much more likely than falls in revenue.

What about the AFL’s opposition to revenue sharing?

One issue for the AFL that has received prominence in recent newspaper reports is that it will make it more difficult to attract some types of sponsorships.

For example, a company considering sponsoring Auskick may be deterred if it believes that 25% of its contributions will be adding to player payments rather than going to junior development.

While it could be possible to define some sources of AFL revenue as exempt from the pool of revenue to be shared with players, this might just bring a new set of problems.

Having two categories of revenue is likely to cause on-going disputes about what should and should not be included in the pool for players.

If you were the AFLPA, you might also be worried that there is an incentive for the AFL to try to strategically direct as much of its revenue as possible to the exempt category.

Hurdles will remain

Revenue sharing offers no magic bullet to the problem of negotiating player payments.

Even if you agree that sharing is a good idea, you still need to agree on the percentage of AFL revenue to be received by players.

There is no objectively correct way of doing this.

First, the appropriate percentage will depend on how you define revenue.

For a narrower definition of revenue, with sources more directly related to player contributions to the game, such as from attendance and broadcast rights, the appropriate share for players will be higher.

Within a broader definition, including gambling-related revenue, the appropriate share would be lower.

Second, as in all pay negotiations, a major determinant of what players receive will be considerations of fairness – and what is fair will always be in the eye of the beholder.

Third, it is no use looking to other sporting codes in Australia or internationally for guidance on what percentage of revenue AFL players should receive.

A matter of scale

Sporting clubs in Australia have the same costs of playing stadia, training facilities and administration as, for example, clubs in the United States. But they much smaller market bases from which to generate revenue.

So it is not surprising that clubs in the United States can afford to pay a much higher share of revenue to their players than in Australia.

So where does this leave us? It seems entirely reasonable that AFL players should want to share in the competition’s future revenue growth.

Without them, there is no AFL. But trying to do this by making player payments equal to a percentage of revenue may create as many problems as it solves.

This doesn’t necessarily mean that we are staring at the possibility of a strike or lock-out of the type that has blighted professional sporting competitions in the US.

Instead, I think there is a way forward that would meet at least some of the objectives of both parties.

A win-win outcome?

The AFL and AFLPA could agree to a fixed base amount of annual player payments, as in the current agreement, but also to supplement this with an agreement for the players to receive extra payments when specified targets are met in future seasons.

These targets would be related directly to areas where the AFLPA may feel there is an extra upside for revenue growth beyond what is incorporated into the annual base payment, and where players and the quality of competition have a major effect on revenue.

For example, suppose the AFLPA is concerned that the AFL’s estimates of revenue growth from attendance and memberships underestimate what is likely to happen.

Then it could agree to the annual base payment, with the extra condition that if revenue from attendance and memberships exceeds the AFL estimate, it should receive a share of that extra growth in revenue.

A “part-fixed, part-variable” system of player payments such as I have described here would have several advantages.

It could deal with players’ concerns to receive a fair share of future AFL revenues by allowing for some growth in payments when revenues rise beyond forecasts, while also providing more protection against downside risk than making payments entirely dependent on revenue.

At the same time, it could avoid compromising the AFL’s capacity to attract sponsorship because the direct transfer of revenue to players would not apply to the whole of its revenue base.

Linking extra player payments to relatively transparent and measurable targets, such as attendance or revenue from attendance (and because these variable payments would be smaller than under a complete revenue sharing system), should also reduce the scope and incentives for costly disputes about the exact amount players would be paid.

This arrangement promises to bring benefits for the AFL and its players, and ensure the integrity of the game is remains untarnished by a drawn-out pay dispute.

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