[tarikjn]

Legal can sometime be a bit like coding, some laws in this domain are still changing (ie. France just recently allowed online casinos). My advise is use the most common denominator in your space, launch and tweak, it's like coding. That's what most successful companies have done. You don't get in much trouble until you have a certain level of success. Of course you need to have a good approach, good intentions and know what you are doing. But you can never really know it all, so that's my advice.

[tarikjn]

Btw if the users are paying, predicting the outcomes of a match is definitely gambling (like gambling on horses), so simply look at the laws for online gambling. Since it's online, most likely only the laws of the state where you host are applied (even for foreign countries, that's how French could play on online casinos before). You might simply host that feature and a subsidiary for it in a state with online-gambling friendly laws. Maybe Nevada, maybe some states or countries have no laws at all on it and even no taxes.

If it's free I'd say it either fall in (free) lottery or contest, it's hard to tell. Either way your best approach is simply host it in a state with no laws at all on the matter. Or if you have a good way to justify it is neither lottery or contest you might as well be fine anywhere.