Problem with smaller cities is that then it automatically is behind soccer. And they need bigger cities, for the facilities, fans that can support a minor league type franchise and most importantly a recruiting tool if the XFL is going to really try to allow players to play who aren’t yet eligible for the NFL or even having a practice squad debate playing there instead.
The problem though, is that being in bigger cities puts them in direct competition with the NFL. That's a fight that they just can't win.
As for supporting a minor league type franchise...in MLB, most minor league franchises are in smaller cities, not in the same city as the big league team.
Putting a team in Los Angeles, for example, puts them in direct competition with the Rams and Chargers. Additionally, the season is set to run February 2020 which puts them in direct competition with the Lakers.
Imo, the XFL would have been smarter to put a team in Anaheim where the Rams used to play and where they only compete with the Angels and Ducks.
Or San Diego which just lost the Chargers and where they would only be competing with the Padres.