Cutting Kids from Sports Teams

I have the unique opportunity to discuss issues in sports and youth sports with a variety of individuals from all positions and viewpoints, some of whom have a good deal of experience as athletes, teachers, coaches, and parents of youth sports participants. Recently I was in a discussion with a mom/coach/teacher/parent who was frustrated over the absoluteness of their park districts rule that all must play equal time, no matter what.

Does anyone know how much if any input an Athletic Director has on a coach's final picks for a team?

I could really use some advice. My son who is 12 and has been playing basketball since grade K recently got put on the "B" team because the new coach picked his sons friends as teammates. My son has more talent and experience than at least 5 of the players he picked. One of these boys has never even played before, and can't make a shot. Another is about 3' 11" and also can't play. These same boys weren't even considered for the rec travel team and were cut. But because the coach is friends with their parents they made the team, and my boy got cut.

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.