Pfft, covid aside, the clubs are bigger and more financially stable now then they ever have been at any other time in their history. Yet even now almost none of the Sydney clubs, or NRL clubs in general (though that's a more complex issue), are sustainable businesses.
In Sydney's case that undeniably suggests oversaturation. There's simply no way around it, Sydney cannot support the amount of NRL clubs that it has without them being heavily subsidised, and those subsidies have massive negative effects on other areas of the sport.
Now how you go about fixing the oversaturation in Sydney is open for debate, but the status quo is not sustainable, especially not considering that it's hindered the growth of the sport nationally for the better part of 50 years.
And you're right the AFL have done it right for their situation, unfortunately the NRL isn't the AFL and the situation in Melbourne is different to the one in Sydney. However we could learn a lot from them, they never allowed the oversaturation in Melbourne to hinder growth nationally, didn't f**k around with rushed half-arsed mergers that didn't really fix any of the problems, pushed their clubs out of tiny dilapidated suburban grounds, and are constantly softly pushing for further rationalisation.