Strange Xbox 360 controller issue(Steam version)

OK here’s the issue that’s happening on my end… Upon entering Arcade mode my Xbox 360 wireless controller can pick a character as player 1 and proceed to start the match.

However, once the match begins, my Xbox 360 wireless controller stops being recognized as Player 1. Instead, it is being recognized as Player 2. So what happens is if I press Start while playing single player, the game will interrupt with a “A New Challenger…” and proceed to acknowledge my Xbox 360 pad as the second player challenger. Does anyone know of a way around this?

This is VERY annoying and I hope they fix it.