Exept it dosent test in a manner that reflects its goals.
So either sport fighting is not street fighting and so you have to street fight people.
Or it is close enough and you have to compete.
How do you know what people you don't know do to test their MA? There are other options than the two you give above and it isn't an either/or choice. Many people I have trained with have tested in both of the above ways, and also in other ways. Different testing tests different aspects of real fighting. Sport fighting is a great test of physical ability, determination, and ability to make it work against another person who has prepared in a similar way. But it isn't the be all and end all of fighting.