Losing the tournament isn't the reason Johnny's life goes downhill. But, the story Johnny tells to Miguel? It sounds like Johnny blames his loss at the All-Valley for the disaster his life has become.
However, Johnny is wrong, because his life would've become a big mess anyway if he'd won at the All-Valley — or even if someone else had come into his life (while Daniel LaRusso possibly would've moved somewhere else instead of Reseda, such as Santa Clara, maybe).
After all, Johnny's ex-girlfriend Ali Mills was already done with him (since it's mentioned they broke up weeks before the events of the Karate Kid film), and him trying to force his way back in wasn't helping his case, either. If Johnny had won the last match in an "honorable" manner against someone else, or even if Daniel had never appeared, he would've gotten what he wanted, but lost what he had; in other words, Johnny would've gotten the first place trophy, but lost his former girlfriend in the process, as Ali would've ignored him and walked away from him.
And as Bobby viewed it in the Season 2 episode Take a Right, taking the "no mercy" nonsense out into the real world didn't really do them any good, and actually messed up all their lives — especially Johnny's.
If anything, losing to Daniel at the tournament actually did a good thing for Johnny; it not only allowed him to escape Kreese's influence — it also gave him the chance to figuratively turn over a new leaf. His inability to do that, and his choosing to stick to those teachings despite them failing him again and again, is no one's fault but his.
But the point is, escaping the CK mentality would've been even harder had Daniel never shown up when he did and if Kreese had continued to exert his influence over Johnny. In other words, Johnny possibly might've taken a not-so-good path, and wound up in prison — which is where Dutch eventually ended up.
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CK & KK Ficlets and Non-Ficlets
Random🦅🥋🏆Mostly inspired by Tumblr prompts featuring Eli 'Hawk' Moskowitz, Demetri Alexopoulos, Daniel LaRusso and Johnny Lawrence, to name a few. Or, the AU KK/CK (and Jacob Bertrand) ficlet and non-fanfic collection I decided to write even though...