I feel really sheepish about this, but tvhipster pointed out that offering a money-value prize was akin to paying for fanfic. I brought this up with the sponsor and they sent it over to legal and they agreed. So, feeling really dumb and pasting 'I should have known better' across my forehead, we have to pull the prize from the contest. I guess it'll just be about bragging rights :/
What's worse is we had entries, so a general announcement will follow this to registered users regarding the change.
Please accept my most sincere apologies for this gross misunderstanding and I'll have to try and seek another way to try and market the site.
If anyone out there is interested in helping me with this, I'd appreciate it.