While I'm certainly not qualified to get into a tax debate, I will tell you that deducting league fees and expenses against your winnings is a very "grey" area, as described by some CPA's. My CPA likes to use the term "creative" when something's not totally legit. So while he deducted everything I spend (fees, travel, computer, internet, etc) against my $5000 League Prize in WCOFF last year, I wouldn't be surprised if future FF winners will be getting a very unpleasant letter from the IRS questioning these practices.
My "40%" figure may be slightly exaggerated for some people, but that's a rough number I use for myself for any excess income, so I apologize. But even if you want to be an optimist and use Dyv's numbers, the return on your investment in a BEST CASE scenario is 5/1 while the odds of winning are 14/1. To the who find those odds appealing, I can only say....good luck (emphasis on LUCK) Nag, at a bare minimum there isn't a good tax advisor in the country who would advise against writing off the cost of getting in the contest to win the money. The IRS standard is essentially 'if it took those costs to make that income you can deduct it (if it's not exempted in some other previous ruling or code, blah blah)' - without the entrance fee AND your attendance at the live draft, you could not have possibly received the compensation. Hard to argue against that.
I don't mind you possibly exaggerating and I'm not saying there aren't some people in these contests with high enough tax brackets to make your numbers realistic, but those people aren't probably worried about the tax impact so much as the thrill of playing
I think it comes down to how you rate yourself as a player - and THAT is a fair question for all of us.
Dyv