It's difficult to say whether the wood has rotted from contact with damp soil outside the tub, or from prolonged contact with water inside the tub, or both. If the inside surface is softer than the outside, then perhaps the tub has simply reached the end of its life. Suppliers' websites suggest that a western red cedar hot tub should last 15-20 years. If your tub has failed in a significantly shorter time, perhaps you should discuss this with the supplier in light of any warranty that was offered. We can say that contact with damp soil certainly wouldn't have helped.

In the subject line of your message you write "rotted western red cedar" so we assume it has started to rot and you aren't just concerned it might rot. If so, it is likely that prolonged contact with damp earth initiated the problem. However if you scrape away the earth it should be easy to discover how deeply rot has penetrated into the wood. If it's only superficial it may cease once the surface is exposed to the air, particularly if you apply an anti-rot treatment.

AS 1720.1 differentiates between edge and end distances for loads parallel to grain and loads perpendicular to grain. Also between unseasoned timber and seasoned timber. Clauses 4.4.4.2 and 4.4.4.3 refer to Fig. 4.9 for allowable end distances, edge distances and bolt spacings. Some variation is allowed, eg. for loads parallel to grain the specified end distances can be reduced "provided the characteristic capacity is reduced in proportion to the reduction in end distance".