If Lance Franklin signs with the Sydney Swans, as several outlets are now reporting as inevitable, the Sydney cost-of-living allowance will undoubtedly once again be a topic of debate. Club presidents will call for it to be cut entirely, and fans of other clubs will, justifiably, point to the Swans’ recruiting power as evidence that the allowance isn’t operating fairly.

But it would be a mistake to conflate the issues of whether a cost-of-living allowance is appropriate and if the current system is fair. In a regulated labour market such as the Australian Football League, such allowances are necessary, but the current system doesn’t ensure they are applied fairly across all cities and lists.

The case for a cost-of-living allowance

The first question one should ask is whether or not it is fair to adjust for variations in regions’ costs of living in a competition designed to be as even as possible. This is an in-principle question that should be answered independent of views on the current model: it is about the in-principle fairness of a cost-of-living allowance.

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. In less restricted labour markets, employers pay higher wages in regions with higher costs of living in order to prevent quality candidates from leaving to go less expensive regions or to attract them from such regions. Because of salary cap and recruitment restrictions, AFL clubs cannot replicate these market forces. The AFL’s regulation of the football labour 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 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 Australian cities, it is. In the same way the cap exists to make the competition more fair, so too does a cost-of-living concession, as it ought to prevent 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 standardised 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.

The current cost-of-living allowance is unfair

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 experience 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: 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. It is not applied consistently across regions or lists, and thus serves the interest of the Sydney clubs at the expense of other clubs. It does not act as a true market correction, as it is applied selectively.

A better model

A better model for a cost-of living concession would be 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 any concessions, 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.

Clubs would negotiate their whole list to X in total player payments, and submit to the AFL. The AFL would then index each city to publicly-available cost-of-living data. The total player payments at the cheapest city would remain at X, with other cities being adjusted to, for example, 107% of X if the cost of living was 7% higher. Each player’s wage in that city would be 107% of what was negotiated. This ensures the cost of living allowance is applied fairly across all lists and cities.

It’s a bit of an odd contractual arrangement, but so too is the draft and trading. Players would negotiate a guaranteed minimum salary, in the understanding this would be adjusted based on actual market fluctuations.

In adopting a new approach to the cost of living, players across the AFL lists would be fairly compensated, and each club would be equally able to access concessions based on the actual cost-of-living in their city.