* It requires them to trust the content-holder to honor the contest and not just take the best idea and farm it out to someone cheaper.
* It allows unscrupulous clients to harvest good ideas, for free, from lots of designers and feed them to the contest winner.
* It forces designers to do work they won't get paid for if they don't get selected.
* It prevents designers from getting to know the client and figuring out how best to deliver the project.
* It opens the project up to non-professional designers who are just as likely to have stolen design components as to have built them for the project.
Some of these arguments make sense (I wouldn't hold a contest after seeing how a bunch of them went). But a lot it has more to do with a privileged position designers want to create for their field. In virtually every other field, some form of what a designer would call "spec work" is the norm. Lawyers do consults. Consultants offer advice in the run-up to a large project. Building a proposal might take 1-2 full-time weeks of work, and your hit rate on those might not be better than 50%.