Your defending team is set as the last one you used in arena. Any upgrades you add to those characters will be present in the defending battles though.
I believe allied heroes are the ones that that ally last used on that mission, but I'm not 100% sure on that. Some just seem to be random heroes.
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I believe allied heroes are the ones that that ally last used on that mission, but I'm not 100% sure on that. Some just seem to be random heroes.