If my friend and I are looking to start a website where users will submit a 5 entry fee for a competition, is this considered on-line gambling?
Question Details:
The user will submit a $5 entry fee to participate in the competition. The winner will receive 90% of the winnings from the entry fees and we will make 10%. For example: 100 users pay $5. The winner takes $450 and the website makes $50. Gambling is chance and luck. The users on our website will win by being voted for having the best song, picture, film, etc. This would make it a contest of skill as opposed to drawing names from a hat. Is this considered on-line gambling?
This probably wouldn't be termed as "gambling", but would rather be defined as a "contest". States generally have an applicable area of law to contests, setting certain requirements (diclosures, rules, finances, etc.). THere are agood many, and appllicable case law, so it would be a good idea to consult an attorney in your state to ensure your compliance.
Given that your contest is based on public voting rather than other measurements, and it's on the internet, you'd still probably run into lots of legal issues, even if the contest-specific regulations were followed. As soon as things like this are released, there are individuals that figure out how to manipulate the system. If you don't do everything possible to ensure fairness (and that's a very subjective term that would have to be well-defined in formulating any anti-fraud procedures), you could be liable for the fraud that comes as a result. You'd have to be very, very cautious about such matters.
You also might need special insurance for such a venture (outside of standard general liability and the like), and I'm not sure if any insurance company would underwrite such a risky operation unless there was very strong backing along with extensive legal evaluation assuring its soundness.
