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Tournaments act like short-term leagues, with the main difference in that they do not "own" their own players. All players in a tournament must be loaned to them from elsewhere, and thus, no world can be set up with just a tournament without any other leagues.
Tournaments will otherwise act like leagues, though, with some exceptions. They can set their own rules and eligibility criteria just like leagues, and have certain other tournament-specific options. They do have some limitations: they are limited to one sub-league (yet may have multiple divisions if desired), and they cannot have the financial engine or trading enabled. There are also certain other league options that are not allowed; for example, teams always have a reserve roster only and not farm teams, and there is no disabled list.
There are two types of tournament play: Development/Winter Leagues, and Tournaments. They function in similar ways with one main difference: in development leagues, players will be gain development experience. The experience they gain will be roughly equivalent to the length of the tournament. So an Arizona Fall League season will give roughly one month of development experience.
Players in non-Development tournaments that not gain development experience, but they still can, for example, gain some fielding experience. Torunaments will not cause regressive development - if you run a winter league and a player is already declining, they will not "age faster" by playing in the winter league.
Tournaments have a roster list date, which is the deadline teams neeed to set their rosters by. Player eligibility is as determined on this date, so if there are age limits in place, they are as of that day. Players may be added afterwards; however, once removed, they cannot be added back in.
Tournament scheduling defaults to a round-robin format. Multiple-games-per-opponent round-robin can be done (for example, an 11-team, 30-game schedule where each team plays the other teams 3 times each.) Custom schedules can be used. Playoff formats can be set using all the options available in a regular league. There is no option for a "bronze-medal game," however.
Tournaments have a frequency, so that they may run annually, or at a different interval in years - every four, for example. Some care should be taken with tournaments if you do not wish them to overlap league schedules - it could be possible that scheduling forces a tournament to end after the regular season begins. If you do not wish this to occur, you may need to manually intervene to move the tournament date up by a week.
Player eligibility/selection is governed by the tournament level (which can be set similarly to the regular league level, Majors/AAA/AA/etc...), as well as the player rejection amounts, which can be set separately for batters and pitchers. Generally speaking, players will only play in tournaments that are within one level of their skill level, so that AA players will tend not to play in tournaments designed for major leaguers.
Rejection settings determine what percentage of players refuse to play in the tournament - 0 will mean everyone eligible will play, 90 will result in only 10% of players from the overall pool being eligible.
Rejections or a small group of eligible players may cause some teams to be short on players. In this case they will be filled with "ghost" players up to the roster limits. This is done to simulate some cases where teams may rather turn to "past stars" to fill roster spots instead of bringing in a raw 18-year old talent (Such as Canada using Orr, Gagne, and Dempster in the 2017 WBC while they likely have some minor league talent they could use instead.)
Player sources for tournaments may be set in many ways. A tournament may be affiliated with another league, in which case the teams source players based on organizations within the league (e.g. tge Arizona Fall League). Teams will attempt a roughly even split between the potential source teams. Those source teams may be either fixed, or they can be set to rotate each year. Of note, this could be a way to simulate a "team vs the World" tourmanent, where you set up a 2-team tournament by affiliation, and have one team draw only from the World Series winner.
Otherwise, teams in a tournament may be set to draw from specific nations or regions. If the teams are set to draw from nations, there is another format where the nations involved will be changed each time the tournament is run - when the tournament begins (pre-season begin event), then the overall player talent pool in the world will be evaluated, and the top 16 (or however many teams are eligible) will be chosen and assigned to the pools. Done this way, teams will keep history (so a team may play in the 2007 and 2011 tournaments, but not in the 2015, but then join back in 2019 and still maintain their history from before).
After the end of the tournament, when players are released back to their regular league teams, those teams must add them back to their active rosters. While they are away at a tournament, they will not take an active roster spot.
Humans may join as the GM and/or manager of a tournament. At the moment, they may only fulfill the same role that they do globally, so if you are set as a GM-only, you may only take on the role of the GM for a tournament team. Tournaments currently only support a GM and manager - pitching and hitting coaches are not supported for the moment. There is a tournament option that determines whether teams will actively email potential applicants to invite them to manage the tournament - if that is disabled, a human may take charge, but will not otherwise be sought out. After the conclusion of a tournament, the coaching staff gets released. However, winter leagues will retain their coaching staff.