I've been thinking about running a contest for web published fiction, so I've been doing a little research. If you want to have some fun, try Googling "fiction contest" and "canceled" or any variants thereof. It seems that launching fiction contests online and them canceling them for a wide variety of reasons is at least as common as continuing them through to the prize awards. The reasons for cancellation vary from prosaic (lead judge required back surgery) to the failed next generational plans of the major trades and agents. Some educational institutions run contests for young writers that are paid for by grants or endowments, and special interest groups may do the same. But when it comes to a straightforward, submit your manuscript and compete for a prize competition, there aren't as many legitimate looking contests as you'd think.
The main fault I see with the majority of writing contests is their business model, which is they are run for a profit. It's not the profit motive in itself that renders them suspect, but the impression that the profit motive is the only motive. In other words, collect fees from a bunch of hopeful rubes that cover not only the prize amounts but also the overhead and a generous allowance for the time of the contest managers, and if enough fees aren't forthcoming, cancel the contest. I'm highly suspicious of anybody whose business model doesn't include a substantial risk in terms of time or money. Some people would call elimination of risk in business wise - I call it stealing.
Another type of contest which I've mused about running in the past is one where the prize is an advance payment on the manuscript, which the publisher running the contest acquires for publication. Arguments about whether a given author is best served by a given publisher aside, I think that's a clever way to drum up interest for submissions, provided there aren't any fees involved. As soon as the publisher starts charging authors a fee to submit their manuscripts, it turns into a scam, even if the winner gets published.
I have several concerns about running a contest, but the primary concern is getting electronically buried in manuscripts. I can justify a contest as a business expense, so giving out some modest cash prizes isn't going to break my bank, but I can't justify hiring help to vet submissions. The main trick used by other online contests is to require the authors submitting manuscripts to rate one or more other manuscripts, in order to thin the field. My own modification on the process would be that I'd only accept entrants who followed (or follow) my advice and publish their fiction online. That would help cut down the potential pool of contestants and save a lot of file management overhead on my part. I'd just post a daily list of web addresses, perhaps on this blog, and come up with a way to count votes before reading a handful of finalists cover-to-cover. Speaking of cover, I'd probably draft a few friends to read the finalists so I wouldn't be the sole buck stop.
Whether or not I'd want to get involved in actually publishing a winning manuscript, assuming the writer wasn't already published, is another matter. But running a contest for nonfiction doesn't strike me as very interesting, and despite making a living as a nonfiction author and publisher, I don't feel that I could judge other author's nonfiction works in an objective manner without being conversant with the subject matter. Judging fiction is much easier in that it's strictly subjective to start with, though stories set more than a hundred years in the past or the future are objectively better than contemporary tales:-)
Another issue, at the risk of shocking the better half of my readers, is that women and men tend to like different books. Or to put it a little more bluntly, I'd define about three quarters of the novels that pass my way as "women's fiction", though I wouldn't be surprised if women make up over 75% of the fiction reading public. But I suppose there would be some educational value in reading past the first page for a change. If you have any thoughts about running an online fiction contest, feel free to comment on this post or drop me a line. It's a thought in progress.