So I have no clue how speedrunners seem to be able to drop in/drop out freely while still using their controller. Whenever I do it, I can't dropout as the player with the keyboard and I can only dropout as the player with the controller. I'm not sure what I'm doing wrong, I tried switching the controller to player 2, to player 1 and nothing seems to work. I'm kinda new to speedrunning in general.

After messing around with this for awhile now, I think I figured out that you have to have the controller as player two. Then escaping for some reason(???????) doesn't let you drop out, so you have to instead press enter which gives you a menu to drop out. Wow PC ports am I right? Just posting this for anyone who's as severely confused as I was.

You need to use the pause button bound to the player you want to drop out. Since escape is the global pause button, its not binded to a player. The default button should be either enter or numpad enter.