More people would sign up though if venue fees were lower.
No, you HOPE more people would sign up if the venue fees were lower, but you have no way of actually knowing this until you try it and the numbers would have to DRASTICALLY increase for you to make the same amount.
So now your plan has changed from 500 people at $40 venue fee (really $35 after you take out the fees) to 1000 people at $20 venue fee (really $15 after you take out the fees.) Because the fees haven't really changed you're now bringing in less revenue. So ok, let's say 1500 people at $20 venue fee ($15 after fees.)
Hey look, your revenue has gone up by 28%! Sounds like a great idea right? Well, your costs are going to jump dramatically. You now need two to three times the space, two to three times the number of setups, power, etc.
Additionally, your costs are going to go up because your choices are now more limited. You are too big for a lot of venues. So where as before, there were three or four places you were shopping at to hold your event, now there are two, one of which is booked the whole month you want your event. Now you're at the whim of one hotel which probably knows it has you over a barrel and is isn't going to be very willing to negotiate on room blocks, etc.
Also, they're probably going to try to hold you up for more money at some point down the line because you're just a bunch of loud kids who probably don't know any better. After you hire a lawyer and have them write a few scary letters they'll probably back down but now that's another thing you have to pay for.
This is IF everything works out and all those people show up. If only the same 500 show up you now have lost 60% of your original revenue AND at least doubled your costs not to mention the rooms you're on the hook for as you didn't fill your block.
$40 is dirt cheap for a multiday event fee. Powerlifting meets are at least that if they're just a one day event (and are $35 entry per event typically.) You want to enter a multiday event like nationals? That number doubles. Not to mention you have to pay a yearly membership fee to enter any of them.
Ever enter a marathon? At the big ones, from the first wave starting to the expo closing is 12 hours at the absolute most. They cost hundreds of dollars to enter despite the fact that they have 30,000 people signed up and a sponsorship list the size of a children's novel.