"That was the theory Dean Smith used for the 1976 Olympics -- and it paid off," an unabashed Coach Joe B. Hall of Kentucky said yesterday at announcement of an international basketball tournament in April in which four for his Wildcats will be on the United States squad.

Eddie Einhorn a New York TV producer, told the media in Atlanta that the national teams of the U.S.A., Soviet Union, Yugoslavia and Cuba will engage in a round robin -- doubleheaders April 5 in Atlanta, April 7 in Smith's habitat of Chapel Hill, N.C., and April 9 at Lexington, Ky., Hall's bailiwick.

Einhorn called it the first major international hoop event in this country and said the aim is to make it second only to the Olympics. Hall noted, "We are supposed to be developing players for the 1980 Olympics, but we also want to win. That is one of the reasons we have four Kentucky players on the squad. We'll only have a few days to practice as a team and it always helps to get your system across when you have a nucleus which already knows it."

So don't be bitter, left-offs ("We haven't made a decision on Freeman Williams," said Einhorn of the national scoring leader from Portland State. "But we are trying to avoid loading up on seniors and we already have a lot of guards") to learn that Rick Robey, James Lee, Jack Givens and Kyle Macy of Kentucky have been selected. Along with North CarolinA's Phil Ford and Mike O'Koren; David Greenwood, UCLA; James Bailey, Rutgers; Joe Barry Carroll, Purdue; Sidney Moncrief, Arkansas; Larry Bird, Indiana State; Darrell Griffith, Louisville, and Earvin Johnson, Michigan State . . .

There's always the Pizza Hut Classic for the seniors -- and Youngstown State of Ohio is campaigning hard for votes to sneak in Ballou (D.C.) grad Jeff Covington among the big-college names for the April 1 shootout in Las Vegas. The 6-8 Covington, averaging 27 points a game this year in Division II, broke the school career record with upward of 2,400 points and Youngstown's Beeghly Center singlegame record recently with 46 against Mankato State . . .

Charlie Finley's attorney Neil Papiano and Bowie Kuhn's lawyer Peter Bleakley argued it out in a Chicago court again yesterday, the Oakland A's owner's suit against the baseball commissioner. Appealing the ruling last March 17 by U.S. District Judge Frank J. McGarr that Kuhn was within his rights in voiding Finley's $3.5 million June 1976 sales of three star players, Papiano told U.S. Seventh Circuit Court of Appeals that McGarr was wrong in ruling that "any sort of feud going on is not relevant to the issues." Papiano contended that malice should have been considered along with Kuhn's right to act in "the best interests" of baseball. Appeal taken under advisement; ruling in perhaps three or four months . . . Meanwhile, Papiano said Finley will sue over Kuhn's veto of the Vida Blue sale to Cincinnati . . .

Baseball: Flying to the Vero Beach. Fla., training base on the Dodgers' plane from Los Angeles, Board Chairman Walter O'Malley became ill yesterday. The plane was rerouted so O'Malley could be readmitted to Methodist Hospital in Rochester, Minn., where he recently was laid up with an undisclosed ailment . . . True to his word of no fiddle-faddle over contract for a change, Boston's Luis Tiant showed up in Winter Haven on time, 20 pounds lighter than last year and eager to come back from his mediocre 1977 . . . Frank Duffy tested the free-agent waters after batting .201 -- and the Indians' pretty good fielding shortstop winds up staying with Cleveland, a two-year signee . . . His chutzpah rivaled that of Roy Smalley, the Minnesota infielder who hit .231 last year, was second in the American League in errors (33) -- and went to arbitration seeking a raise to $110,000 a year. He lost, had to settle for Twins' paltry offer of $85,000! Similarly, Atlanta pitcher Dick Ruthven went 7-13, 4.23 ERA and put it up to an arbitrator whether he was worth $75,000. He had to take the Braves' $65,000 and shut up. Makes your heart bleed for 'em, doesn't it? . . .

When middleweight Ronnie Harris, 23-0 as a pro since winning a 1968 Olympic gold medal, boxes Gratien Tonna tonight in Vegas (WTOP-TV-9, 11:30 p.m.), Harris will fight with a yarmulke clipped to his hair, having fought in court for permission. His nickname "Mazel," means "luck" in Yiddish.