Peter V'landys says the NRL will redirect the planned $1 million performance budget to junior rugby league after Tones and I withdrew.
The Australian singer was due to headline the grand final entertainment at Accor Stadium on October 4.
Negotiations reportedly broke down when she would not guarantee performing "Dance Monkey", her biggest international hit.
The song topped charts in more than 30 countries and featured in Tones and I's performance at the 2019 AFL grand final.
The NRL considered its inclusion essential, while the artist has previously described "loathing" the song and apparently sought control over her setlist.
Her withdrawal leaves the league without a headline act less than two weeks before the decider.
Nine, the host broadcaster, reportedly regards pre-game entertainment as important for attracting casual viewers and is angry about the outcome.
The development also contrasts with the AFL's booking of Kylie Minogue for Saturday's grand final at the Melbourne Cricket Ground.
Rather than find a replacement, the NRL plans to abandon its traditional grand final music performance this year.
V'landys defended that decision, saying, "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... Wouldn't you prefer to see a kid that couldn't afford to play the game be able to play the game?"