you cut out each participating team or person in a competition. for example, all 16 teams of the European championships at the moment.
Then you put these names in a hat, or bag. People then take a team name without looking at what it is, and pay a set amount of money. Say, £5.00. All 16 teams are then pulled out of the hat, meaning that there is then £80.00 collected.
The prize money can then be split out however you want to. for example, £50.00 to the winner, £30.00 to the runner up, or £50.00 to the winner, £20.00 for the runner up, and £5.00 each for the semi-finalists.
It's just a laugh and makes certain competitions more exciting, and you don't have to know anything about the sport or event to take part.