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Why can't they all play?

At my children's school they have enough children to & coaches to have 3 or more volleyball, basketball teams.  Beginning in 7th grade for the girls (6th grade for the boys) they have try outs for volleyball and basketball.  They have an A team, B team and C team.  I am trying to find any articles, studies etc that show this is divisive to the morale/cohesiveness of a class and negatively affects self esteem. 

Anecdotally, I have a lot to say to the school such as:   the A team children say to the others, "you can't sit here you aren't on the A team."  The morale & then the desire to play for the b or c team falters because they can't get the ball over the net or across 1/2 court line because all the best athletes, ball dribblers etc are on the A team.  So they feel like failures or drop out because it's no longer any fun.

I am trying to find any information I can share with the school that shows or supports keeping the 3 teams evenly divided with some having A players and some having B/C players is in everyone best interest

Interestingly, 90% of the parents and all 3 coaches do not want try outs and believe it's best to leave as is.  However the school states that the children have to get used to tryouts and defeat.  It's unfair to the best athletes to keep them "down", that the league makes them pick a team to play in A league and if we don't have try outs then one team randomly is assigned and can't compete with other schools that have try outs.

I am looking for any information, studies, etc that can support this belief that there is no need for tryouts when there are 3 teams evenly distributed.

Can you help with this question?