A lot of the reason people don't play in the CO (based on the responses I've heard, anyway) is simply because they think they don't have a chance. Who cares!? It's free to enter and you have a good chance to get matched up against SEA's best! It's a perfect opportunity to get some tourney experience (again, for free), practice and discuss your games with the baller studs that beat you, and have a good time!
Considering it's a tourney, it comes with the added mental notion that if you compete, you're aiming to win. If people ditched that mindset, then yes, your points are valid. However you must consider that not all of us are individuals with a mindset focused purely on improving as a player. I imagine most people under Masters lose enough games to other people on ladder as it is, and in a tournament the stakes are obviously somewhat higher.
I feel that seeding previous CO winners is a reasonable option, since then the unseeded people who make it further feel better about it. At the same time if someone is casting for the whole of the tournament, then it allows for a higher level of quality games in general to be casted over the whole tournament.
I also do agree on switching around timezones every now and then, then it's fair for everyone given that everyone has their standard days.
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