Where to host a online game which pays out cash prizes?

I am developing an online game. The entry would be as little as $10US but the winner's take could be significant depending on the number of people that play.

Now I am a very ethical person, and everything will be above board, but I want to host it in a country which has very few regulations on these types of games, which most countries consider as gambling. This will add a nightmare amount of hurdles in order to get the game funded and launched.

So are there countries that will host these types of games without the myriad of regulations? Or are online games governed by the regulations of the country each particular player is in? That would be the death-kneel of it.

You would think that tiny countries like Vanuatu, or tax-haven territories such as the Isle of Man for example, would have far less regulations and be far more open and therefore much easier to setup operations there.