Melbourne president Jim Stynes raised the issue during the week when he suggested a minimum expenditure level be introduced to allow his club to catch up to powerhouses such as Collingwood.
Demetriou said there was no need to set a limit for clubs, as it was ultimately money reinvested into enhancing the game.
"I don't think we're going to cap footy department spending because I don't think it's got to that stage," he told radio 3AW on Saturday.
"There are clubs who are spending significantly less and they are making finals.
"Let's not kid ourselves; St Kilda is one club that spends significantly less than Collingwood.
"I think the clubs, in fairness to them and I'm defending them here, have got a lot smarter with the way they spend their money in the football departments."
Collingwood has been reported to have turned over more than $75 million last year but Demetriou said it was likely to be less than that given the Magpies' gains from gaming, which other clubs don't receive.
He said the real challenge faced by the competition was finding ways to boost the financial outlay of poorer clubs.
"The clubs have all got great facilities now. Tick. That's what we've tried to do from five years ago," he said.
"They spend money on better gym facilities, they spend money on physical science, they spend money on more coaches, they spend money on psychologists, dieticians.
"All of these things to my mind are helping to prepare their players. They're not banking money; they're reinvesting it back into their players, and I think it's lifted the standard of our competition.
"Yes, there's sort of an imbalance because Collingwood might spend might spend $19 [million] and another club might spend 14 or 15 but our challenge is to get the spend of the lower clubs up in the footy departments so they can compete because it does provide an advantage."
Demetriou also said the League was interested in introducing a code of conduct for player agents in the wake of the Ricky Nixon scandal.
"I think there's been two learnings out of this recent issue with Ricky Nixon; one, we need to get our player agents and provide them with the respect and responsibility program access that all of our other people in the industry have," he said.
"Secondly, we've got advice now where we'd like to have a three-way agreement between the players' association, the agents and the AFL, so they could come under our rules.
"The players' association can still accredit them, but we would have a code of conduct whereby if player agents transgressed and affected our game or brought it into disrepute, we would have a mechanism to be able to deal with that."
The AFLPA has held the responsibility for accrediting agents since 1998, which is a similar situation to other sports around the world.
Demetriou also said the broadcast rights deal was close to being resolved after constructive discussions with the TV networks.
