Except the whole point of the contest was for Cloud/Sephiroth to have a chance against Link. While the bracket could have been made better we can't make changes like that because we didn't know at the time.
You could place Link and Cloud anywhere in the bracket and they would meet up eventually. If Cloud wasn't able to make it to Link, he was never going to beat Link. However, the match Cloud loses in would probably be a good one as opposed to getting killed by Link. You are right that pre-contest there was no way to know that Cloud/Sephiroth could have been given a much better path. No one was supposed to be able to challenge them except Link.
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Pokemon VGC2011 US Nationals - 54th place
Pokemon VGC2012 NW Regional - 16th place