Co-authored with Tom Lewis
The success and long term financial viability of sporting competitions in Australia rely on an even competition between participants to ensure the uncertainty of outcome. A key strategy used to achieve this is by restricting the labour market. Two of the prominent examples utilised by the Australian Football League (AFL) are the national draft system and the salary cap. In essence, these mechanisms limit player movement and places a maximum on the amount that can be spent on player wages.
These measures would generally be considered a restraint of trade and this article examines the interaction between the restraint of trade doctrine and the sporting industry.
What is a ‘restraint of trade’?
Restraint of trade recognises that the “right to work” and the right to “choose an employer” are fundamental pillars of the Australian legal system. A restraint of trade will only be deemed reasonable if it is:
- reasonably necessary to protect the legitimate interests of the person in whose favour it is imposed;
- not unreasonable on the person restrained; and
- not against the public interest.
Australian Courts have recognised that professional sporting competitions display ‘special economic characteristics which confer for the purpose of the restraint of trade doctrine, a legitimate interest in seeking to promote equal on-field competition’1.
The salary cap and national draft system are designed to limit a player’s earning capacity and mobility. Ordinarily these restraints would be deemed void, however they will be deemed legal so long as it can be established that they are reasonable.
Rugby League – Internal Draft
In preparation for the 1991 season, the New South Wales Rugby League (the League) attempted to introduce an internal draft. The internal draft was designed to have an evenness of competition across the 16 teams located throughout New South Wales, Queensland and the Australian Capital Territory as well as ensure public support and the financial viability of the clubs.
The new rules meant that any player who wanted to change clubs once their contract had expired could only do so via the internal draft. A player nominating for the internal draft was offering their services to any club willing to select them. If a club selected a player, they were accepting the player’s offer and an employment contract was formed between the parties. The restriction of player movement by the League was designed to prevent the stronger clubs from attracting all of the top talent and creating a large divide with the struggling clubs. The selection priority of the clubs in the internal draft was determined by the ladder positions at the conclusion of the previous season, with the lower performing clubs afforded first access to the best talent.
The introduction of the internal draft led to significant player dissatisfaction, resulting in the matter being brought before the Court. The Court determined that the League rules restricting the movement of players were an unreasonable restraint of trade. The Court did acknowledge that it was a legitimate objective of the League to create an even competition by ensuring the teams were as strong and as well matched as possible, however this could be achieved by the salary cap. The success of the player’s case meant that the rules of the internal draft were deemed void2.
AFL National Draft
The AFL conducted its first National Draft in 1986 following the eradication of the zoning system. More recently the AFL annually conducts three separate drafts - National, Preseason and Rookie (AFL Drafts) in respect of the men’s competition. Players who nominate for the AFL Drafts are unable to choose their preferred club or negotiate the terms of their employment contract. The only exception to this is the father-son (father-daughter for the AFLW) which allows clubs preferential access to the children of former players who played a minimum of 100 games. The AFL describes the AFL Drafts as a major list management tool for the clubs and critical to achieving its objective of an even competition and uncertainty of outcome.
The AFL Drafts would be considered a restraint of trade as the employment terms and conditions for all new draftees are standardised for the initial two years. To determine if the restraint is reasonable, the surrounding circumstances must be considered.
Unlike the internal draft, an AFL player who is under contract but wishes to move clubs is deemed a ‘restricted free agent’. Where an opposition club makes an offer of employment to a restricted free agent, the player’s current club may choose to match the offer. The negotiable terms of the contract typically include:
- Contract length;
- Base payments;
- Total match payments; and
- Additional services agreements, including marketing and sponsorship contracts.
In circumstances where the player is considered a “required player”, the original club will likely match the offer. If this occurs but the player does not wish to remain at the current club, they must seek to be traded or enter the AFL Drafts. If a player is not under contract, they are deemed an unrestricted free agent and therefore can move to a club of their choice without restriction.
To date there has not been a legal challenge in respect of the AFL Drafts and therefore the reasonableness of the restraints have not been judicially considered. However, the AFL framework does allow greater movement of players outside of a draft and as such is not as restrictive as the former internal draft.
AFL Salary Cap
The AFL salary cap system was introduced in 1998 as part of the five-year Collective Bargaining Agreement negotiated between the AFL and the AFL Players Association. The salary cap is a mechanism used to limit the total player payments (TPP) to prevent the richer clubs from attracting the best talent due to better compensation packages. In 2004, the TPP for each of the 16 clubs was $6.12 million compared with $13.4 million in 2022. Clubs typically engage in extensive negotiations to try and retain the best talent whilst complying with the salary cap rules.
Financial and non-financial penalties (such as loss of draft picks) exist for clubs who are found to have breached the salary cap. The most infamous breach occurred in 2002 involving the Carlton Football Club, who was fined $1 million dollars after paying additional money to players after they had finished at the club.
Similarly to the AFL Draft there has been no serious legal challenge to the validity of the salary cap over the past 25 years. If such a legal challenge were to occur, the Court would need to assess the reasonableness of the salary cap in achieving the league’s objectives.
While there has not been a significant restraint of trade challenge launched in recent years, sporting executives cannot afford to rest on their laurels. In determining the reasonableness of any restraint, the Court would consider the surrounding environment and context. In recent years there has been an increased awareness of the mental health challenges of young people and therefore this should be taken into account when requiring athletes to move significant distances from their support network. In respect of the AFLW, players might be required to relocate to another state for a competition season that lasts for less than three months. Further, the expansion of the “father-son” rule could be contemplated to incorporate “father-daughter”, “mother-son” and “mother daughter”. While it is a valid objective of sporting executives to achieve a strong and even competition with an uncertain outcome, measures must not unreasonably interfere with an athlete’s right to choose their employer or ability to earn a wage.