The award-winning Victorian performer reportedly refused to commit to sing her biggest hit, Dance Monkey, which went No.1 in more than 30 countries in 2019.
Toni Watson, known professionally as Tones and I, has previously spoken of "loathing" the song which made her famous.
Rather than look to attract another big star to perform before the grand final at Accor Stadium on October 4, the NRL will instead direct the $1 million payment to junior rugby league.
Ahead of last year's title deciders, ARL Commission chairman Peter V'landys mocked the AFL's choice of Snoop Dogg as grand final entertainment, calling the veteran rapper a "dog act" while promoting the NRL's booking of another American performer Teddy Swims.
"What's he called, Labrador or poodle? All I know is it's a dog act. We had to get better than that and we actually got a vocalist," V'landys said at the time.
This year the AFL signed up global icon Minogue to perform at Saturday's grand final at the MCG between the Fremantle Dockers and the Brisbane Lions.
But the NRL's own big dog made the call to go without a major pre-game set and instead will give it to junior rugby league.
"Rather than giving a performer $90,000 a minute, we would prefer to give it to grassroots," he told the Sydney Morning Herald, whose parent company Nine are the code's broadcaster.
"We believe that the entertainment is our game. It's more the media that put themselves into a frenzy who we get as performer. But when you look at it realistically for 11 minutes, it's not worth it. People will come to the game with or without it. We believe the money is better spent on junior rugby league."
The decision follows a recent vote by the states and clubs to elevate V'landys to full-time executive chairman, with the appointment expected to be announced this week.
A spokesperson for the NRL told AAP V'landys had been in discussion with the NSWRL about junior funding well before the stand-off with Tones and I and her management.
He wanted the money to be used to help "2000 or 3000 kids who couldn't afford to play rugby league be able to play rugby league".
AAP has reached out to the management of Tones and I, who performed the song at the 2019 AFL grand final.
