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I'm pretty sure it's relative to just the teams in the league. If I'm not mistaken, market size is just one of the modifiers that affects team attendence based on LEAGUE average attendence.
Makes sense too, think about it in terms of a modern day league. You'd have a few teams at the big sizes and then everyone from maybe AA down would be small or lower. In an independent league that doesn't reflect the sort of impact an additional 20 or 30K people in a market would have on sparse markets.
On a side note, I never start a team with a market size above 10. If a club gets to 11+ its because the game bumped 'em up.
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