Agreed, though I also think that the contest isn't necessary (both the movie and
Earth One did without it without harming the plot any; well, the plot and setup of
Earth One was rather badly done, but omitting the contest was not one of the problems).
For the contest to make sense from a world-building perspective, I think the following requirements should hold true:
- There is a reason why not every single Amazon is participating or volunteering
- Diana must not have come into her full powers yet
Though now that I think of it, there might be a second possibility. Hippolyta knows that Diana has special powers and strengths, and will win if she enters. The real test would thus be if she is willing to go against her mother's stated wish by actually entering the contest. Though as plots go, that's rather too complex, I think.