Fair, good, better: improving the AFL's cost-of-living allowance
With alarming predictability, the AFL’s cost-of-living allowance comes up every couple of months, usually during trade week, just before the season starts, and any time a team with the concession does well. As a Swans supporter with a pretty active twitter account, hardly a week goes by without someone making a sly comment, explicitly or implicitly suggesting we bought our premierships. So this weekend, when Greg Swann suggested the salary cap concession was inappropriate, the usual cycle of arguments started again. Richard Colless replied with the absurd suggestion that such questioning of the manner in which the League is administered should be a fineable offence. These conversations are absolutely important to have, and even though I disagree with him, I’m glad Swann raised the issue. As football supporters, we should be engaging in the way the game is administered, because it affects the competition. Unfortunately, we often conflate a number of issues. We talk only about the existence of the cost-of-living allowance in yes-no terms, rather than taking the time to step back and ask other questions. 1.       In principle, is a cost-of-living allowance fair? Of course, the first should question should be whether or not it is fair, in a competition designed to be as even as possible, to adjust for cost of living. You can agree with this statement without agreeing with the current model: it is about the in-principle fairness of a cost-of-living allowance. It is something that I believe is absolutely fair. In a regulated market like the AFL, salaries and recruitment are protected from true market pressures. This is by agreement between the League, the clubs and the players, however much some would like to challenge that. Because of this, football’s employment market can’t naturally adjust for cost-of-living the way other employment markets do- to prevent quality candidates from leaving to go less expensive cities, or to attract them from such cities, more expensive cities pay higher wages. AFL clubs cannot replicate this market. The AFL’s regulation of the market, in the interest of fairness, is what makes the cost-of-living allowance necessary. It’s important to note that the regulation doesn’t start with the cost-of-living allowance; it starts with the cap existing to begin with.  The cap exists to attempt to make the competition fair. The justification for the regulation is fairness. So by is a cost-of-living concession in the interest of fairness? Given there is a substantial and proven difference in the cost of living between cities, it is. In the same way the cap exists the make the competition more fair, so too does the cost-of-living concession by preventing clubs in more expensive cities from being at a disadvantage in attracting and retaining players because of the cost of living in those cities. It compensates for the lack of market pressure. It’s also important to note here that the AFL is by no means alone in doing this. Large corporations with standardized salary schemes adjust for cost of living between cities. Again, this is largely because they are not protected from market pressures, and so must do so in order to attract and retain high-quality employees. 2.       Is the current model for the cost-of-living allowance fair? This is the more interesting question. If you accept that, in a regulated market, concessions must be made in order to account for the lack of market pressure, designing those concessions to mirror that market as closely as possible, without providing an unfair advantage, is both crucial and difficult. The current system allows the Sydney clubs a flat additional concession on top of the current salary cap. They are under no obligation regarding how they spend it, nor is it adjusted as the market changes. Furthermore, other cities that have experiences substantial growth in the cost of living, such as Perth, do not have similar concessions. The ad hoc nature of the concession undermines the valid underlying principle: that adjusting for cost of living is in the interest of fairness. It’s a fair idea, administered in an unfair way. Rather than accurately replicating the effect of market pressures, the current salary cap is a band-aid, an inadequate solution virtually guaranteed to alienate stakeholders in other clubs. 3.       What is the ideal cost of living concession model? I’d argue a better model for a cost of living concession in to adopt a competition-wide salary benchmarking program as part of the next Collective Bargaining Agreement. Players should sign contracts with each club based on an equal salary cap- without concession- and then these contracts should be indexed annually to cost of living in the city in which they reside, based on a range of accepted benchmarks. I understand this is a bit of an odd contractual arrangement- but then, so is the draft and trading. Players would negotiate a guaranteed minimum salary, in the understanding this would be adjusted based on actual market fluctuations.  Players in the cheapest cities in which to reside would getting only their negotiated contract value, which across the club would add up to the standardised salary cap. Players in other cities might get 106%, or 112% or 116% of their negotiated salary, based on the cost of living in the city. These salaries would be paid by the AFL. In adopting a new approach to the cost of living, you’d ensure everyone, not just the marquee players, is guaranteed to reap the benefit of the concession, and that each club is equally able to access them based on the actual cost-of-living in their city. I’m sure, though, there are other models that could work. Any ideas?