how about we lower the requirement a bit more by saying that to be eligible to participate in this contest, a user must have at least 10 merits & 60 activity, since that's the least criteria needed to take part in most signature campaigns (I.e Member rank), as that will give room to more contestant and voters.
I always thought that most campaigns
have too low standards for picking their participants. Indeed, 10 merit is minimum for being accepted --
and you see how many zero-value posts are made everyday, right?

I think that 10 merit is too low as a requirement because I really would like to send a message to users that if they want to take part in this awesome contest they should try their best in making positive and informative actions [...] I don't see earning the required amount of merits such a herculean task.
Considering that you need only 217 merits
to enter in Top 1000 of users with most earned merits, it's also not
that easy. However, it's not a herculean task even by far. I am sure that those which have at least 10-15 merits can manage to obtain a few more for becoming eligible, if they really want to. After all, for ranking up from Member to Full Member you need a 1000% raise of merits (100 merits is 1000% more than 10). In our case it's "just" 300%

As for the prizes, I think that having multiple users/sponsors holding their funds may make the distribution of the prizes a tad more difficult regarding each user sending Y amount to each of the winners (considering 60 % for 1st place, 30% for 2nd and 10% for 3rd)
True, but nobody can know for sure if there will be co-sponsors... This is just a possibility, not a certain scripted event.
but that's easily achievable by a good spreadsheet and management.
And this is very correct.
I'm building the thread as of now
Yay!
I'd have one more mention, about how many nominees a user may choose? Should it be only 1? 3? No limit?