Couldn't they just have found an unencumbered sponsor from outside "the land of the free"?
Cancelling the event seems an awful lot like giving in to the demands of terrorists.
The Cold War has reached out a long-dead hand to stifle the Pwn2Own hackfest in Tokyo – with the international Wassenaar Arrangement blamed for the event's cancelation. Organized by the HP TippingPoint-backed Zero Day Initiative, Pwn2Own slings bounties to researchers who find and exploit security bugs in popular software and …
No, at this point in the (legal) timeline. If you do it in the land of the free the "hackfest product" cannot be exported to Europe, Japan, Korea or elsewhere without a license. So you are stuffed in a very similar manner.
The only way to do it is to host it in neutral waters on a ship registered to a country which does not participate in Wassenaar and could not give a damn about software "weapon" exports. In fact any cruise ship registered in the Bahamas, LatAm, Africa, etc is a fair game. If it is outside the main tourist season it will also end up cheaper than doing it in let's say Japan.
Sad but true - we have reached a point where we cannot have an international security hackfest or conference in any Western European country, USA, Korea, Japan, Australia or New Zealand.