It's the Maya/Josy principle being applied here; he could easily have us do things with both girls on different days but we can't because he makes it so we can't. The faculty event and fight tournament are now this; 2 events happening simultaneously and you can't do both.
Yes, he invited him
to watch because he's not participating and this is before he was potentially invited to the faculty event. He could perhaps go there for a bit before going to the faculty event if he's going there either to perform of because he was invited by Sage, or Jill, or Bella on their paths respectively. But he
WILL NOT participate in the fight tournament and perform at the faculty event and he
WILL NOT go to the faculty without having been invited to it. That much should be abundantly clear by now.
Oh hallelujah! Miracles do happen.
This line wasn't specific to New Year's though and it wasn't in reference to only having a small party for NYE. The preceding lines were as follows:
Sage: "No, but for real! We should party and celebrate things together!"
Jill: "What are you talking about?"
Sage: "Christmas! We should celebrate Christmas! And New Year's! And birthdays!!!"
The important line there is the first one. It's a general sentiment that she wants them to do more things together as a group and she wants them all to be at these special events. It's not her saying she wants only to have a small event for NYE with just them, it's her saying that she wants them there, whatever form the event takes, and it's going to be in the form of a big freeroam in a new location with 87 people because NYE is going to be the big party of the episode.
Bella's only saying that because, as the adult and the teacher, she doesn't like feel a) she is part of this friend group, and b) she should be part of this friend group. But it's very much established she is part of this group by the end of the episode and she's happy to be given how relaxed and cool she was with them, letting her hair down and rediscovering her youthful spirit.
Because this party will be in a new and neutral location and comprise of DIKs, HOTs, Jocks, Preps, Nerds, dorm girls, dorm guys, and faculty. The numbers add up to get very close to that number and even if there aren't faculty, DPC has plenty of voiceless, nameless background characters to add to make up the numbers.
But the reason faculty will be there is because it allows for some high drama moments involving Bella, Jade, and even Cathy and Nora if they're there should we have something like a blowup leading to the MC's relationship with them beng outed. Even without that, this is the last party of the season and it's only right for it to be the biggest ever party and to have as many characters in it as possible both for maximum drama potentials and scenes but also because NYE should be a massive party and nobody should be left out.
They will because we need them to make up the numbers. Guaranteed we'll be fighting all the people we already have in Brawler this season, so that means the participants will be:
- MC (or a new rando if not participating, or maybe Jimmy since he was seen with Dawe in Ep 11)
- Troy
- Dawe
- Alex
- Dwyane
- Chao
- Tate
- Caleb (late addition and the final boss fight)
The weightlifting competition is in the spring which means probably sometime between March and May. This tournament is happening in December so there's no danger in participating now, they won't want to do it nearer the time. They clearly also do fighting as well as weightlifting, Dawe and Alex at least, and we've seen Jimmy with them in the boxing area as well as Caleb hitting the bag. So I think it's pretty certain they'll be in this.
Hush peanut, let Daddy work.

[/SPOILER]