If you have been promoted each player will lose a star.

They don't however lose any skill.

If you have a player now who's overall skill is 28 and he is 6 star, tomorrow he we still be 28 as far as skill, but will be 5 star.

This is because every time you get promoted you can get a better standard of player (each promotion you get the quality of player available for transfer increases by 5 skill points). So you are playing and bidding for better players. On level 1 the worst players you can bid for will have skill points of 8 or 9, and they will be 1 star players. On level 2 the worst players you can bid for will have skill points of 11-14 and will be 1 star players etc...

At level 8 every player with less than 39 quality is 1 star. To you they will appear as 9 star+ players now.