So I managed to figure this out. The answer was to amend the world xml file so as to include the states as Regions. I was paranoid about screwing up my game so I made a copy of the xml file, backed up the game and then followed the instructions from this thread:
http://www.ootpdevelopments.com/boar...ref-guide.html
And it worked! I've attached a screenshot with the states now as regions. I tried to attach my amended world xml file to this thread but the file was too big. If anyone wants this let me know and I'll send it to you. I set up a tournament and the players do come from the correct states, so it does work.
Thanks to all for your help.