starting money based tournaments here

Hey I know but people have started money based tournaments for titled players , Non-titled players also need a chance to play a money-based tourney.

The US law uses different definition of the term "gambling"?

Well, different from whose definition though?

Who knows, brah.

why illegal? I don't understand it. Isn't the U.S. a libertarian country?

'The land of the free'.

Part of that statement holds for OTB tourneys in the US: "Players would still be putting money up against an unknown outcome in hopes of gaining more money."

How does moving the game to online change the situation? As far as I know, chess tournaments with money prizes don't fall under gambling statutes. If they do, then I haven't heard of anyone getting prosecuted for gambling by holding or competing in tournaments.

The U.S. a libertarian country? LOL.

You'll have to ask the people who wrote and passed the law how moving something online changes it, not me. Personally I think the law is idiotic.

So prizes can't be based on number of entrants or their entry fee i.e. the entry fee must be admin cost based and not used to fund the prize fund.

That was one of the links I found too. The following, http://www.liebertpub.com/media/content/igl_02_p11-52.pdf, has some interesting information in it too.

One pertinent part:

The definition of “gambling,” unless changed by statute, consists of any activity with three elements: consideration, chance, and prize. If any one or more of these elements is missing, the activity is not gambling.

While an online tourney would have consideration and prizes, chance is not there: Chess is a game of skill, not chance.

Another pertinent section, as it applies to chess:

Most jurisdictions hold that the element of chance is supplied if luck enters in at any point as a substantial factor in determining the outcome. As the official commentator to the New York anti-gambling laws put it: “Gambling is not defined purely in terms of betting or risking something of value upon a contest of chance. The point may be illustrated by considering a chess game between A and B, with A and B betting against each other and X and Y making a side bet. Despite the character of the game itself as one of pure skill, X and Y are ‘gambling’
because, from their standpoints, the outcome depends upon ‘chance’ in the sense that neither has any control or influence over it. The same is not true of A and B, who are pitting their skills against each other; they, therefore, are not ‘gambling.’ It is this feature that requires the definition of ‘gambling’ to embrace not only a person who wagers or stakes something upon a game of chance but also one who wagers on a future contingent event [whether involving chance or skill] not under his control or influence.”

I haven't read the whole thing, and IANAL, so this isn't legal advice. Also, individual states may have regulations that may interpret chess tourneys differently.

User in this case. Post made redundant by 32.

Right. What the OP proposes is entry fees funding the prize purse.

If there is an Amy Lee in this tournament I might join.

That would be a safe wager.

And most OTB tourneys in the US have the prizes funded by entry fees. I'm still not seeing how moving something like that to online suddenly makes it gambling. Can you point to specific statutes that make that the case (US based that is).

rdecredico already did above. The pertinant part is this: "All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants."

Legally, a prize purse that is funded by entry fees would constitute gambling, and gambling online is illegal in the United States.

The link rdecredico posted was the same one I looked at. The thing is that an online event does not suddenly change the definition of wagering which requires chance to be materially involved. Chess is mostly a game of skill and any chance involved is ancillary.

Thus, chess tourneys don't meet the definition of gambling provided in that link. Based on the fact that OTB tourneys have the same stipulations/circumstances as online ones would theoretically have and they aren't considered gambling (in current law and in jurisdictions I'm aware of -- though I'm sure there somewhere it is) then I don't see how moving them online changes that.

ICC already tried real money events and they caught even famous GMs cheating !!  LOL  Any such event will be full of cheats so why bother ? 

Oh, I agree with that statement. I'm more interested in the legality aspect.

Doing something like is being done with the World Mind Games tourney might be way to go but there would need to be some method to limit liability from booting cheaters from such an event, when they are found.