[Ktulu]

I just did a quick test to make sure it works, here's how to do it...

In advanced league setup on the rules page change the setting to not allow foreign players and have it based on team nationality.

Before your inaugural draft go into each team's settings page and set their Region to the state you want.

Run your inaugural draft and check team rosters. You should see that teams will only have players from their state. However, you'll also likely have many teams that are short on players so you'll have to manually fill them with fictional players.