Yes, it does kill all of the build up. I don't think that is necessarily a bad thing. It established that Sabertooth is not the main opposition and that the festival was just a small part of a bigger plot (and that was foreshadowed heavily beforehand). I'm surprised you haven't picked up on this, LaZodiac, since you tend to be so genre savvy - tournaments on shounen manga are rarely played straight, to the point that the tournament being interrupted by X is pretty much a trope on it's own. Sabertooth and Raven Tail were decoy antagonists, that has been clear for quite a while now. Did Mashima spend too much time building them up? Maybe, but we don't know if they will play a part on the actual arc.
For all we know, they might befriend FT and then die, being the people mentioned in the letter Levy sends Lucy. In fact, I'd bet money on that, even - I'm pretty sure all dead people mentioned are not from the guild (or just joined the guild for the purposes of being killed off). He used the festival to create some new characters, give them some spotlight, get them some fans, so as to be able to kill them off and have an emotional response. Sacrificial lambs, if you will.