Took a look at this, and it seems like you just have too many players on the team. There may be some sort of hardcoded limit, I'm not sure.
Other orgs do have larger rosters, but it looks like guys are just getting auto-assigned there and then stuck there.
Once I released another 10-15 players and got the Rookie level roster down to around 80 guys I was able to demote players there again.
So you'll really just want to keep less guys on your Rookie league team. There's no real benefit to keeping that many guys around anyway, 90% of them won't even get to play at all and if some of them do play they might do so at the expense of your better prospects.
Another thing to do might be to actually set some (slightly higher) roster limits on the higher levels of the minors (like maybe 30 guys per level) so the ai will send more players to the higher levels and less get bunched up in the rookie league.
I've never seen rookie league rosters as big as they are in this save, not really sure why they got that way in the first place
At any rate, I'd also recommend adding a few more low minor league levels to this world for the extra players to play in or else generating less players through having less rounds of the draft and less IFA's to begin with.