This competition model has been common at racetracks (motorsports) around the country for a hundred years. The promoter takes some of the "gate" to pay prize money. Sometimes the pros even get money just to show up, so that there are big names at the event.
The model is viable, but a little risky sometimes if you don't know how many spectators will pay. Usually the prize money is set before the cash flow is known.
With The International the final prize pool was set fairly close to the actual event, based primarily on 25% of sales related to this last Compendium. That was where the vast majority of the 10.8 million came from (I want to say Valve seeded the first million but I'm not positive).
The model is viable, but a little risky sometimes if you don't know how many spectators will pay. Usually the prize money is set before the cash flow is known.