It’s actually not forbidden at all. You just can’t have a Grand Prix tournament with those conditions (at least in theory you can’t, but in practice you can really advertise just about anything at least once).
But for a non-Grand Prix, you can say something like “prizes per entries” or even “everyone wins a prize!”
As far as I know, it isn’t. What’s forbidden is to mention an amount and then pay less than 50%. If you don’t specify an amount you may not get many players, but that’s the organizer’s problem.
There were definitely some serious abuses in the past (“$1,000,000 based on 10,000 entries!”). Miami was a recent and minor example, though the ED’s reluctance to enforce the rules gave it some legs. The fact that scam artists/fools won’t get another bite at the apple is small comfort to people who get burned. The current system (requiring 50% or proportional payout for tournaments advertising more than $500 in Chess Life) is a compromise, but it has worked fairly well for many years. I think Ken Sloan’s fixation on this is overblown, but he’s free to seek converts.
anjiaoshi wrote:
For small events, they’re not forbidden although players would like to know what they’re entering before they pay their entry fee.
Tournaments under $500 don’t have a minimum guarantee. In the past some organizers would advertise things like $20,000 based on 250 entries while they had no expectation of getting anywhere near those numbers. At a minimum, I would say that practice was unethical.
Having misleading advertisements leads to prospective entrants having second thoughts about ads for legitimate based on prizes.
The font size question is interesting. We are talking about non-TLAs I believe. I can understand that the good news will get more space in advertising.
(1) The fact that the bad news is there at all is to the credit of the advertiser. There is a difference between shady and dishonest, just like there is a difference between paying less than 50% of advertised and absconding with the entry fees.
(2) If the “weight” of the disclaimer gets out of hand, I just hit the mental off switch. Like those radio ads where at the end some guy drones on for 15 seconds with all the caveats. I have to assume I will never get the deal offered.
So if there were some super-small font size, unless I thought it was a joke, it would be a big red flag for me.
Of course, now I can’t find whatever it was that convinced me that a TLA for a tournament based on entries had to include either a fixed dollar amount or a fixed percentage. 
I’ll take your word that it’s OK to run a TLA that says simply, “Prizes based on entries.”
Percentage payouts aren’t forbidden in large events, either, as long as Grand Prix status isn’t important, it’s just that people probably won’t play in them if there aren’t some fairly specific prize amounts listed.
BTW, ‘the market’ doesn’t function efficiently for many players because there aren’t a half dozen or more organizers out there competing against each other, except maybe in the big metro areas like NYC, Chicago and Los Angeles. Even then, there really aren’t that many choices on any given weekend in those areas for events with $1000 or more in prizes.
The New Britain (Connecticut) chess club’s normal practice is similar – for the Tuesday multi-week tournaments, all entry fee money, minus rating fees, is returned in prizes. (The club is adequately funded by dues and our one weekend tournament, and the TDs (including moi) are unpaid volunteers, although we get free entry if we want.) Ideally, our schedule would be determined far enough in advance so we can do TLAs for all of our tournaments – hasn’t happened yet, though, although I’m going to push again for it.
– Randy Shane