AFL great Ron Barassi said he would rather see his former club Melbourne die than relocate to another state to survive.

With a debt of close to $5 million, the Demons were teetering on the brink of collapse prior to former player Jim Stynes taking control two months ago.

While a fundraising dinner for Melbourne's most influential supporters on Tuesday night erased more than $2 million of their debt, the club's precarious position had prompted Hawthorn president Jeff Kennett to urge the Demons to move to the Gold Coast to survive.

Barassi, one of the club's favourite sons who played in six Demon premierships from 1955 to 1964 and coached them from 1981 to 1985, rejected such a move.

He said it was imperative one of the game's founding clubs remained in its original form.

If the Demons could not, he said, they should fall on their sword.

"I think it's very important for the story of football that the original club does survive," Barassi said.

"I think they are one of the Victorian clubs that can't move. People will go `how unfair is that' but to have the initial club with the name Melbourne leave, I'd rather the club dies."

Despite costing themselves $115,000 following the sacking of president Paul McNamee, Melbourne's dire situation has now seen the AFL order them to cut their player payments if they are to be granted a multi-million dollar injection from the game's governing body.

Instead of paying their players close to 100 per cent of the salary cap, the Demons have accepted a cut to 92.5 per cent for next season.

Barassi was hopeful the new Stynes-led team would be the answer to the Demons' current financial woes.

"We're very hopeful there, we needed to start afresh, whether we have the right people or not, only time will tell," Barassi said.

"But there's more passion there now than there obviously had been in the last couple of decades.

"It is a hard task and they have made some good steps so far but we'll know in about five or 10 years (whether it can survive)."

Barassi believed a better way to help struggling AFL clubs would be to pool all the gate receipts and evenly distribute up to 30 per cent of the takings.

He also thought there was a greater chance another Melbourne-based club would relocate to Tasmania because of a long-held belief that Melbourne could not sustain 10 AFL clubs in the future.

"I'd be surprised if (a club didn't relocate to Tasmania) in the next five years.

"Tassie's a real heartbreaker - they deserve to be in the competition but I don't see how they can afford it. They only have half a million people and there's split between north and south, if there was half a million people in just one area then it might be a different story.

"We already have three or four clubs at the money table, I don't think we should do the same thing with Tasmania.

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