Get Rid of The Donkeys
Coach
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That's one reason. The other reason is News Ltd didn't want to prop up a Perth-based team while establishing one in Melbourne.The Reds were cut to make way for a Melbourne team. A Melbourne team was request by Foxtel / News Limited as part of the competition merger as they didn't have any penetrations into the Victorian market ... they didn't have the AFL at that stage.
It's sad because Perth does have potential and has done more for the game to warrant one, but the big wigs chose Melbourne due to demographics. The irony of all this is @Perth Red supports Melbourne Storm, despite them being the biggest obstacle in the way of Perth having its own team.