If nothing outside such competition can be destroyed or damaged, neither directly nor indirectly, then it's possible that practically anything can be allowed. The more there can be collateral damage the stricter the regulations will be. So, regulations should make sure that whatever happens in the competition stays in the competition. If something happens, damage has to reimbursed and regulations will tighten.
Of course, it should be possible to opt out: a colony or a ship can proclaim that they can take care of themselves, and thus attract spectators who want to be in the middle of the action.
