I think the formula was kept secret in the past, but now that you have revealed it...
Since you are doing a lower score is better format, and any game not showing up on a list gets hit with a 50+10 score, that is doing huge damage to games that only get a few votes. At the same time, it is a bonus to games that get a lot of votes, even if they are low on a list. Do games that get a lot of votes really need a bonus? This is exactly what you are talking about in your last paragraph.
It might take more work, but reversing the scoring and going with the highest score as the winner may work out better. And just a zero score for anything not showing up.
Although I guess you could keep the same format and just hit games not on a list with a 50+1 score. You could take the data from this year and see what happens with that change.
It was public knowledge from the very start, though over the years both Smeags and Leadified (well, and I) have often ommitted the information. Keeping things well tied up is kinda in the nature of the event, and all.
I think the 10 point penalty is justified in that it's consistent. If a game's not on someone's list, it's not on someone's list - that is to say, if this person was to extend their list up until this game would show up, on most occasions it wouldn't be #51 and to be fair neither would it be #60, it'd be way down. But giving it 51 points kinda makes it feel like it "just" didn't make it into that list, which isn't the case at all, and it also means it gets only a single point less than that person's 50th favorite game, which they probably love a lot more than mostly anything they didn't list. Again, the penalty is there mostly to prioritize the consistency of the individual lists rather than the final results.
Personally, while I don't mind the results being overly Nintendo-centric, I gotta say I'm not looking forward to another year of Mario Kart 8 and Super Mario World and Super Mario 64 and all that stuff in the top 10 (edit: okay SM64 isn't going anywhere). The last thing I want to happen to this event is for it to become stale.