What is the ruling on competition prizes?

All perfect praise be to Allaah, the Lord of the worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.

Prizes have different rulings according to each case. They may be recommended, permissible or prohibited.

Among the recommended prizes is that of the guest as the Prophet, sallallaahu ‘alayhi wa sallam, said: "Hosting should be for three days and the prize of the guest is one day and night (during which the host offers him special food and drinks) and what is more than this is charity."

Among the other prizes are those of the governor and the prizes of competitions.

The evidence for competition prizes is the Hadeeth (narration) that was narrated on the authority of Ibn ‘Umar that the Prophet, sallallaahu ‘alayhi wa sallam, held a horse race and gave a prize to the one who won the race. [Ahmad]

Prizes are permissible in lawful competitions such as horse racing and javelin throwing. If prizes are granted by the ruler, it would be permissible to take them by the consensus of scholars as they cite the above mentioned Hadeeth as proof of this. If the prize is given by a third party other than the competitors, this would be permissible according to the majority of scholars and among them are the four Imaams.

The prize may be given by one of the competitors. This is permissible according to the majority of the Hanbali scholars as well as the Hanafi and Shaafi‘i scholars and this is one opinion of the Maaliki scholars. 

If prizes are given by all competitors, there should be a third party that does not pay and the one who wins should take the prize whether he was the party who did not pay or otherwise. The majority of scholars kept the condition that there should be a third party who does not pay in this case.

Shaykhul-Islam, Ibn Taymiyyah did not state this condition as there is no proof of it. Perhaps the reason for stating this condition by the majority of scholars is to avoid gambling and this is a sound opinion as scholars defined gambling as, "A dealing where every party should either be a winner or a loser." Thus, if the third party participated and did not win, he will not be a winner or a loser.

Allaah Knows best.