I think it depends on how you eat. Most kid meals at Disney run between $5 (breakfast ) and $8 or $9, with most in the $6-$7 range. Most adult QS locations charge $10-$20 per meal, with most closer to the middle. Unless you're planning to eat TS (which wouldn't be covered under the
free dining plan unless you're in a deluxe resort), it will be easy to stay under $800 for two meals per day. Especially if you'll be offsite one day for the tournament, I think it would be a waste to essentially pre-pay for a meal you won't be onsite to eat.
I just realized that the extra $800 I would be spending if I changed my package to the free dining package will also give us park hoppers. Currently we don’t have the park hopper option on our tickets. I have been struggling to decide between AK and Epcot, because we have 4 day tickets and we all want to spend two days in MK.
Have you looked at the difference between a 4-day ticket and a 5-day ticket? I looked at
Undercover Tourist's prices for July, and the difference between a 4-day base ticket and a 5-day base ticket is about $15 each. So unless the tournament is going literally all day into the night, you can probably make it to one of the parks. At minimum Epcot will be open until 9, and perhaps longer if it's an EMH night. I'd plan for AK to be a park day, and Epcot to be the evening after the tournament. Maybe you won't get to do WS this trip, but you can make a good dent in some of the FW rides in just a couple of hours.
This isn’t a bad idea. I have thought about the target red card, but didn’t feel like 5% was really that much of a savings.
You can use the Disney gift cards to pay for all aspects of your stay, including your room and tickets. 5% doesn't seem like a lot, but if your vacation is $3,000, that's a savings of $150. You can also take a look at the Disney Gift Card thread for ways to get gift cards at a greater discount.