I don’t think you can apply real world logic to explain a plot detail in “Street Fighter”.
In reality, fighting in a temple or in a palace wouldn’t be allowed even if the setting is a tournament. So, in this regard the “Street Fighter” games are unrealistic anyway.
In reality, you wouldn’t be allowed to fight in a palace. But likewise, in a sanctioned tournament you would still not be allowed to fight in a Buddhist temple.
Furthermore, a sanctioned tournament wouldn’t be held in the market district of a Chinese town with people on bicycles driving by.
By the way, the fact that “Street Fighter Alpha” has the Chinese Wall as well, even though this game isn’t a tournament either, pretty much proves that in the “Street Fighter” universe, fighting in these areas is not an uncommon thing.
So, sorry, but this logic just doesn’t work. You cannot prove a plot point about canon by pointing out that this or that detail wouldn’t be possible in the real world.
In the real world, a tournament wouldn’t take place all over the world either. But that still doesn’t mean “Street Fighter II” isn’t a tournament. In the same way, your arguments don’t prove that “Street Fighter I” has to be a tournament.
But answer me this, which is a question not based on real world logic, but that is valid even in the “Street Fighter” universe: If it is a tournament, why do the “Street Fighter I” battles have no audience at all? There are no people in the backgrounds watching the fights. Why?