1995 40hp Tracker/Mariner outboard lower gear issue

[templett]

Boat wouldn't go into forward or reverse. Drained gear oil and found lots of water and very little oil. I have pulled lower footing, removed bearing carrier, and removed prop shaft. I am inspecting all the gears and bearings. I haven't found any metal shavings or anything that would show me the gears or bears are bad. There seems to be some play between the reverse gear, o-ring(large) and bearing carrier. I was wondering if the play is normal or not. I am preparing to replace all oil seals but was hoping that I wouldn't have to replace the bearings.