What do I need to do for charging people for buy in fees for tournaments to pay for rewards? 5 Answers as of April 09, 2014

I have been working on a website for the past year, and it is pretty much complete at this point. I am just trying to figure out the business/ financial side of things first before launching it. On the site, I will be hosting a country wide tournament which will be over a span of a few months, so basically like a season, where each state will have brackets of their own. Towards the end of that season, each state's top 10 teams will have to pay to lock in their team for the tourney for the state tournament, in which the winner will go on to represent their state in the tournament. The paid lock in fees will go towards rewards for the winning teams and portion will go to myself. Once all teams have been established to represent their states, those teams will have to pay another lock in fee which will go towards rewards to the top 3 teams of the country wide tournament. So I am wondering, is this legal to do and if so what do I need to do for taxes and so on?

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Sebby Law Office
Sebby Law Office | Jayne Sebby
For a project this complicated, you need to hire an attorney who can help you with all these issues. You'll be dealing with both state and federal law in a number of areas. Creative people love to work on the innovative aspects (the concept and the website) but the business side is even more important. Get that attended to before you launch the website.
Answer Applies to: Nebraska
Replied: 4/8/2014
LYL Law Group
LYL Law Group | Lior Leser
Setting up an online fee-based tournament is very complicated and is based on specific exemptions provided in the law of some 38 states. Do not go forward without speaking with an expert attorney. It's very easy to trip on a small item and end up running an illegal gambling site.
Answer Applies to: Florida
Replied: 4/9/2014
Roe Law Firm
Roe Law Firm | Theodore M. Roe
If you are talking about a tournament of an online game, you have set your business up backwards. You should have been asking this question before spending a year on the website development. You must obtain the appropriate trademark and copyright licensing from the owner (which may be the developer but also may be multiple parties). If you operate without such licensing and you are deemed to have willfully violated their copyright you could be subject to up to $150,000 in damages (per violation), plus attorney fees and costs; and if you are found to have willfully violated their trademark the actual damages could be tripled, plus attorney fees and costs. You need the assistance of a qualified intellectual property attorney to move forward without incurring substantial liability.
Answer Applies to: Oregon
Replied: 4/9/2014
Lawyer for Indie Media
Lawyer for Indie Media | Sue Basko
You need to consult directly with a lawyer. You need to read 18 U.S.C. Section 1955 Prohibition of Illegal Gambling Businesses. This law makes it a federal crime to run a business in violation the gambling laws of any state. When a game is on the internet, it is in every state. If the tournament you are planning involves gambling or betting on the outcome of sports games on the internet, this is illegal in many states. Therefore, you need to consult directly with a lawyer who can help you determine if what you plan to run is a game of chance or a game of skill. You need to really handle this thoroughly. Writing onto this site is a good start. Now you need to get a lawyer.
Answer Applies to: Illinois
Replied: 4/9/2014
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