It doesn't work because it cuts off backstage access to several TM areas, including retail loading for SpongeBob StorePants and quick service deliveries for KidZone Pizza Co., both of which are remaining open. It's also break area space for multiple locations.
You'd have to devise a flyover bridge-style queue to make it work... And considering even when they developed the Super Nintendo World plans for KidZone they still left the current entrance for ET, with just a skinny walkway on the right of the giant multi-story Nintendo land, tells you that even when blocking the entrance to ET they STILL wouldn't reroute the queue.