As a general rule, I don't require color belts to compete. However, I do strongly recommend and encourage them to get the experience of their first tournament as soon as possible. There are many of my students who prefer not to spar, so I recommend doing form competition at least one time. There are others who don't want to compete at all (usually a confidence problem), so I request that they participate as a tournament volunteer (score keeper, ring runner, etc).
I do require that a student participate in both sparring and forms at least one time before testing for Black Belt. Even if a student is not "interested" in sports or competition, there are things to be learned from the experience, even if it is just the ability to assess a tournament from the inside point of view in order to teach others about it. Since competition plays a big role in shaping, honing and testing the skills of Martial Artists (good or bad experience), I don't feel a person can be a knowledgeable Black Belt in the Martial Art, and give advice to new students about tournaments, if they have never had the first-hand experience themselves.
Officiating at tournaments helps to see the inner workings of competition, and judging forms and sparring teaches a Black Belt what to look for (especially if they attend special coach/referee seminars), and how to compare between opponents who use differnet skills and tactics. Having competed at least once in a person's career is an eye-opener, and will offer lessons that will last a life-time.
If a school has enough students, they might hold tournaments just among their own students (with or without trophies, medals, or ribbons). They are fun, educational, and void of politics. Where an organization has two or three schools in a relatively close geographical area, those schools can usually compete with each other, and avoid the negativity associated with larger competitions. Still, I find it a valuable lesson to be able to attend any tournament, of any size, run by any system of Martial Art, with all the politics in the world, and still enjoy the day.
If we, as Black Belts and Instructors, can not handle the politics and attitudes of other undesirable people, then how can we teach our students to do the same in real-life scenarios (at work, at home, socializing with friends). In my opinion, to avoid tournaments because you don't like what goes on at them, is to miss an opportunity to train yourself, and prepare your Black Belts for dealing with jerks in real life! :ultracool
I've heard many instructors over the years say, "I don't do tournaments and I don't take my students to any because I had a bad experience with tournaments in the past." Well, at least you had that "experience." To deny that experience to your students (even if it is a bad one) is to give them less experience that you have. Let them find out for themselves. Perhaps they will enjoy it, and benefit from it (the above comments are general and open comments, and are not directed at any one person).
Respectfully,
CM D.J. Eisenhart