So I lean towards your #2, but in that case, how does home coutry merchandise work? If the draftees are random but we're still Utopian in team nationality, there's no chance to earn extra merch either with home draftees or once the current stock of utopian players age out.
I think the solution here is to simply count any player drafted from those select nationalities as home players. If in the US, you get that extra merch bonus for having US players. You get an extra bonus beyond that if its a US player you personally drafted. This we all know, so in this case it would be only unique in that if your a Utopian team, you'd have 10 nationalities that would function in that exact same manner for you.
Functioning like that would allow you to still get those Merchandise Bonuses AND raise the balance in national team play by giving those smaller countries more talent that could be developed into national team players.
1) Utopian team owners will have more of a reason to care about player development on these teams and
2) Smaller nations would get a talent pool boost as they could select Utopian players that are of their nationality thus giving them a better chance to be able to compete against larger countries despite having terribly low user basis.
3) Utopian teams would still get their Merch boost because the players would still function the same as they would in any country, only it would be several nationalities that would co-exist underneath the Utopian banner.
The idea of changing the Utopian into an Intercontinental Basketball League is honestly a great idea as well. There just needs to be some kind of change and the more drastic of a change the better for this additional League to mean anything more then just being a half decent time filler