I'm not sure if this will help you or not because I have a girl who is actually fairly tall for her age. But she is two years younger than her classmates. As she is in middle school she is playing school sports, all of which are quite competitive around here. For the last few years she has always been among the smallest kids on her teams, but not always the shortest (she has kids who are naturally small and not redshirted along with a few girls who were redshirted specifically for sports), but she is now starting to grow and will be one of the tallest girls in a couple years.
The biggest advantage we have seen with her playing sports with her classmates, though, is that she is taught at a higher level and her athletic skills - she's a decent athlete, but definitely not a natural-born "athlete" - have risen to the challenge. For her it's been similar to how it's been with academics: if you teach it she will learn. I'm convinced that if she was playing with her agemates she'd be an decent athlete playing like the other 11 year olds. But since she's always gotten to play with her grademates she's a decent athlete playing like the other 13 year olds.
Too, she has skills that will help her athletically that other kids don't always have. She learns plays and rules incredibly quickly, she's very consistent in her performance because she's a bit of a perfectionist, and she understands the nuanced coaching she receives.
If he's small it's possible he's always going to be small compared to both his grademates and his agemates, and you can't keep holding him back until he's average-sized. But maybe emphasize to your DS the things he brings to athletics that other kids might not that could really benefit him. And, maybe see how much stock *he* is putting into these things.
In the meantime, I like the suggestion to find him a sport where small height is an advantage or at least doesn't really matter, or an individual sport like swimming or martial arts where he can build his athleticism without the direct comparisons to other boys.
