The problem with a fee-to-enter system is that only one person will win. It has the ability to drive away the high level and mid level graphic designers along with the low level ones.
I suggest having tiered competitions:
TIER ONE:
Designers Allowed To Submit - All Registered Designers.
Price Range For Competition - $100.00 to $299.99
TIER TWO:
Designers Allowed To Submit - Top 1,000
Price Range For Competition - $300.00 to $599.99
TIER THREE:
Designers Allowed To Submit - Top 500
Price Range For Competition - $600.00 and up
Also, competition holders could pay for a Mentor to help critique designs in Tier One competitions. Let's face it, most competition holders are not qualified to critique the work being submitted to them. When I was a graphic designer I constantly had to bite my tongue when a client would ask for something that would undermine their goals. Imagine paying a Tier Two Designer $50.00 and a Tier Three Designer $100.00 to give up to three critiques 24 hours before a contest ends so the CH can get some valid feedback from someone who understands color theory, composition, typography, lighting, line weight and style.
I don't think the junior artists intend to do bad work. But, clearly, they believe that slapping a free font into photoshop and applying random gradients with a drop shadow IS graphic design...and that's sad. They're devaluing an amazing craft...perhaps not on purpose, but they do it all the same.
A lot of artists complain that low hourly rates is why clients devalue this craft. I've been in the business since I was 14...and I completely disagree. The problem is that I could get paid to do graphic design at 14! That's what devalued the craft! I was better than most 14 year olds, but I look at my old portfolio and cringe at how childish, melodramatic and crude my work was.
Clients learn this the hard way. They go to a graphic design firm and find out that a good logo will cost about $500.00 minimum. They leave feeling like they escaped a mugging. They complain to Uncle Joe, who says "You know, my 15 year old son is taking art classes in high school. He could design your logo just as good as that rip-off designer you met." So, the client hires his nephew...
...for one hundred dollars.
The nephew is jumping up and down! He just got 100 bucks to DOODLE! So, he downloads a few free fonts. He doesn't know enough about kerning, x-height, ascenders, descenders or line weight to judge a font properly. He just picks some random free fonts because they look cool and remind him of movie logos. He loads up his pirated copy of photoshop. Slaps on a few random filters. He never bothers to set up the project file for 300 DPI. He rasterizes the type. He flattens it as a jpg...
...and, that's what he sends to the client.
The client knows the logo isn't the most amazing in the world, but he doesn't have a clue what trouble he is in when he wants to scale the logo or alter the color so it fits better with a brochure. He doesn't understand why the logo "gets fuzzy" when he makes it bigger. He doesn't understand why the colors are so hard to reproduce (Who needs pantone, right? Color is color!)
For about a full year the client struggles with this logo. He looks at other brochures and their logo is sharp at any scale. He starts to notice the awkward spacing between the letters. He starts to notice that the "effects" applied to the "words" don't scale right and don't print well.
Ever so slowly, he compares his $100.00 logo to his competitors. To other business owners. To business cards at trade shows. Brochures that come in the mail. Magazines. TV. Movies.
Finally, he's golfing with a friend. The friend, who is also a business owner, hands him a brand new business card with a refresh of his company logo. And, the client quietly says "Wow, man, this looks great. Why's your stuff look so great and mine doesn't?"
The golf buddy says "I don't know. Which design firm did you hire?"
"Oh, I thought they were too expensive. I went with my nephew."
And, by the time that conversation ends the client realizes how he's been his own worst enemy. That he got what he paid for. That a logo should last 5-10 years and therefore $500.00 for a logo is a DEAL.
This is the problem with these competitions. The competition pits professionals against the 15 year old nephews of the world. Create a tiered pricing system and I believe you'll see educated clients pay more for logos. You'll also see quality go up because the top designers will only be competing with the top designers. They'll have to push themselves harder if their competition is tougher.
I'd never pay less than $350.00 for a logo. I always gadge how much work a logo is and I pay accordingly. I'm holding a $1,000.00 competition right now...not because I like to overpay for art. Because the design I want is damn hard and $1,000.00 reflects that I'll pay for quality. Not every CH gets that. So, create a system that drives them to the right answer without them having to fully understand why.