A mega gym isn't going to dismantle their larger teams, but I think what it comes down to is that a mega gym like CEA, CA (both of them), Stringrays, etc likely have more level 5 reserves across their larger teams that they can now turn into an XS team than some gyms have actual level 5 athletes total. They also have way more R5 and level 4 athletes that they can pull in case of injury or other issues, so they won't have to really worry about spreading too thin (i.e. not having enough reserves for larger teams).
To me, it defeats the purpose of the division. I was a huge skeptic of XS when it was announced but it won me over when I saw it creating visibility and opportunity for smaller gyms and their athletes.
The way I see this going: gyms in the small divisions with other Worlds teams who can't compete with the SMOED's and SSX's of the World and place in top 15-20 every year but can never break through to top 5 will just go XS. In addition, mega gyms no longer have to deal with the problem of telling athletes and their parents that they're a reserve—they'll just go on an addition XS team. Now, the problem we used to see in the small divisions (a million teams with only a handful that have an actual chance) creep into XS.
ETA: I do agree that it would probably be okay to have franchise locations have XS teams but do think there needs to be parameters around distance to original location, crossovers, etc.