Sure, taking the bike away and not allowing to participate in competitions is adequate punishment. But telling him that the bike is gone for good and that he won't get another one? That's too much IMO. I hope they have told him by now that that's not really the case.
Edit: On the other hand, the boy is pretty smart. He figured out himself that possibly his dad just wants to teach him a lesson and the bike is not really stolen. So, from what I hear, he hasn't been terribly upset about it. I wonder what the parents will do if the boy just accepts quietly that he doesn't have a bike (for now) and doesn't beg for it?
Or loses all interest in the BMX competitions.
Oh well, children all over the world survive their parents. It’s impossible not to do things wrong sometimes.