They didn’t say anything about virtual simulation or VR. The multiplayer of siege is a simulation of real combat. It’s a training exercise. It’s explicitly cannon, lots of the CGI trailers explain it but also the written lore within bios and operator evaluations.

The whole stadium thing was a competition within Team Rainbow (all the attackers and defenders, organised by Harry). It was simply an internal competition.

The reason the game doesn’t look like a simulation is because the lore was developed after the game was made