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Mark,
If having the teams chosen the way they were last season brought up the participation then I would suggest you stay with that.
If there are enough teams you should think about forming multiple divisions. Name them something other than A, B or 1 and 2 even though that is what they are.
At the midway point of the season, evaluate where each team is and then move them around according to their skill level.
This should help reduce the number of blow out games and the kids should have a better time as they are now in more competitive/close games.
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