Maybe it would be fairer to say that overspecialization or overemphasis in any one area, to the point where it precludes other experiences, can push past the tipping point from advantage to disadvantage. Being healthy and physically fit is certainly desirable, but competitive team sports, which are what most school sports programs promote, aren't necessarily the best way to achieve lifelong fitness. In fact, US sports programs, especially football, are coming under a lot of scrutiny because they're very expensive, with a lot of coaches and equipment, but for most children they never lead anywhere in later life. One kid may get to the NFL or the NBA, but the other 9,999 are more likely to get a concussion or a serious knee injury, and then to stop practicing the sport as soon as they leave school. They might have been better off just doing sports for fun, intramurally, and they would have had enough time to compete in spelling (or poetry or dramatic reading or whatever) and performance on a musical instrument as well. Maybe the key is a healthy balance.
Spelling is actually by no means the only form of competition for students in the US, it's just the only one that happens to have traditionally been publicized through an annual tournament sponsored by city newspapers. (Which may be a dying cultural tradition as well.) Many if not most US states have other regional and statewide competitions in all kinds of academic categories. Mine had drama (one-act plays, monologues), debate, speech (extemporaneous speaking), 'ready writing' (essays), journalism (headline writing alone used to be a separate contest), math (including mental mathematics, without pencil or paper; and in my day, slide rule), and I can't think what all else. Foreign languages, especially Latin, had their own separate conventions and competitions. Now, students have additional competitions in things like geography and robotics that we never had, and general-knowledge academic contests where four-person teams compete against teams from other schools. Any of those can get obsessive carried to extremes, but I don't think that makes any of them not worth attempting. Of course some of them will appeal to some people more than others, just as some kids gravitate to academics, others to music or sports; I'm not saying everyone should enjoy spelling, just that it shouldn't be all that surprising that some people do.
And that, while it is a zero-sum game in the sense that any one family or child only has a finite amount of time and energy, the activities themselves aren't mutually exclusive by definition; you could actually play tennis or soccer and do competitive spelling -- or debate, or clarinet, or choir or Latin or chess or whatever.