They should be using promotions to generate ancillary sales and not use the entrance fee as profit.
Pretty much everything a business does needs to generate profit in some way. That's why we call them a business rather than a charity.
Tournaments can be used as a form of advertising, but in many cases it won't actually generate any increase in customers. At my LGS we had a store championship for X-Wing, Armada and Imperial Assault. Two types of people showed up... Regular customers and people from far enough away they'd never show up again.
So in that case, none of those tournaments would generate any additional sales for that LGS. Which means if he didn't make any money from the entry fee, it would of been a net loss for him.