The event is a bit too penalizing. I like it in concept, and I certainly like it more than not having anything and would keep it over deleting it for sure, but it could really truly use a tweak or two.
Have the territory being controlled by or a vassal of HRE members be enough. Requiring it be added to the empire is absolutely absurd when said territory is generating AE which can hinder the ability to meet the requirements to add it. Having the territory as a vassal of a HRE member (opposite the IA penalty for members being vassals of an outsider) should suffice, for sure!
Remove the Venice proper requirement, if it exists as I think it does. Brescia, Verona, Treviso, Friuli (please forgive spelling errors) should be necessary - Venetia itself not. If it's already not on the list my apologies.
Add some sort of option for the occupation of Rome that allows this to work without nasty penalties. I realize the reason for the penalties and support them, but alternatives are needed or it conflicts too heavily with the shadow kingdom event. Perhaps the addition of a peace deal that is similar in cost to force-vassal, but without any AE, that force-members a nation INTO the HRE? Or, perhaps the option to release Rome that puts it into the empire, rather than just freeing it and in doing so failing the event? There could be a better idea I haven't thought of, but, there just has to be something feasible for bringing Rome into the HRE (a HRE goal for centuries and necessary for this event) without debilitating penalties for doing so.