The law in question doesn't actually mandate that school sports teams must be designated “based on the biological sex of the students who participate” in the sport. If you read the law, it only prohibits biological males from participating in female sports. It does not prohibit biological females from participating in male sports. Quite the contrary, it specifically acknowledges that all students, regardless of sex or gender, are allowed to participate in "boys" sports.

https://codes.findlaw.com/az/title-15-education/az-rev-st-sect-15-120-02/