That's still a punishment no matter how you look at it. You decreasing the amount they can win, it's not fair in any sense.
The fact you say "people won't even bother playing if they can't win" is bs. It never stopped people from joining the events from when even race was created, and even when I was ET there was the same people winning those events all the time, and even since then the race event in particular has never decreased in players and I don't think you see tons of less players in it now compared to all other events, unless you perhaps compare it to the most popular events but that's not a fair comparison.