Does this happen in baseball/ basketball as well? From an Australian perspective it seems unusual.
I doubt this happens in basketball because the same ball is being handled by numerous people on both teams, so it wouldn't be fair to let one player or team break the ball in to their own preferences. The same would be true of your AFL. In the NFL, teams are using their own broken in balls, and the quarterback is (usually) the only guy who has to actually throw it.
Baseballs only last a couple of pitches and offense/defense are completely different games, so I seriously doubt anyone is allowed to do anything to any ball before the game. When a pitcher gets a new ball it is already pre-rubbed in a special mud, and they can rub it in dirt a bit but they can't put anything that will stick to the ball on it as it gives the pitcher an advantage.
Of course in baseball you'll still occasionally see the pitcher with a hidden "foreign substance" used to doctor the ball once they get ahold of it. Back 20ish years ago it was not too rare for a pitcher to be discovered with a nail file or scratching the ball on their belt buckle. Generally this is seen as "part of the game", and well, there are admitted spitballers/nail-filers in the hall of fame and nobody really cares. Nowadays, if a pitcher gets caught with a "foreign substance" (usually pine tar), they are usually suspended for a few games, the media goes into a frenzy, and retired baseball players say they all did it too.
The ruling seems weird, but that's probably why the NFL allows its teams to supply their own game balls, instead of providing fresh ones for every game.