[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.