Top Gun is a business just like most of the organizations. I am sure if they have 120 kids try out they will have 4 teams too. You make it sound like they are doing this as volunteers. The kids should play where they are comfortable at a level they are comfortable at. Having more teams enables an organization to get the kids playing with other kids at their skill level. As their skill level improves they have the opportunity to move to a different team that fits their needs and talent. Some kids will to the opposite and that is fine too.