While I don’t have any problem with a company trying to set up a business model like this, you’d have to be an absolute fricken moron to want to be a part of it (as a designer).
Take this analogy for example: if you're a single guy, why in the hell would you ever want to waste time planning and driving to get on a cruise ship with 1000 passengers...and you're told AHEAD OF TIME that they'll only be 1 woman and 999 guys? Your odds are horrible.
Well, in that same light, you're odds are even worse if you're entering design contests with 200 projects available and 20,000 other registered freelancers. You're going to end up blowing 6 hours (about how much a freelancer will pour into a logo or other design project) for JUST the chance to get paid. It's pure insanity.
I know...I know, the contest sites will tell you that this is a great way to build your portfolio, get your feet wet and make connections. Hmmm, last I checked I couldn't pay the mortgage by building my portfolio and getting my feet wet.
Guys, you only stay in the freelancing game if YOU GET PAID.
You can enter as many "contests" as you want but unless you get paid you're not really a freelancer - you're a hobbyist.
It boggles my mind why any designer (unless they were really confused or desperate) would do this.
These contest sites don't really give a crap about clients skipping out on the deal or pulling some other stunt (which I've been told happens more than you think). Nor do they really care about copyright infringement and protecting other freelancer's work (which I KNOW happens quite a bit). These contest sites really don’t want to help designers, they just want to make money. I don’t blame them for this, they have every right to do it - just don't be fooled into thinking they are totally looking out for you as a designer - they're not.
On the designer’s side, instead of going out and finding their own clients, I've discovered that many designers just want someone to do it for them. Instead of focusing on the things that REALLY matter in helping them to become a success, many designers waste their time twittering, message boards, IMing, and checking out Photoshop tuts. Some actually are diluted enough to believe these activities will make them a success.
Freelancing = having to market, promote & sell. If you don’t like to, can't or won't do these things, I suggest you learn to farm.
PS – I’ve seen CrowdSpring's new sales technique (which is actually a pretty good one), on Twitter they announce a big company or celeb is crowdspringing their project. Designers start dreaming, “Hey that could be me, I have a good shot in winning this – wouldn’t it be incredible if I won?” Going back to my single’s cruise analogy – oh great, now there are 4999 guys on the boat and still only one woman.
If you're into long shots, play the lottery. If you're serious about freelancing, drop the contest sites and develop your own clients. I have nothing against contests sites operating and promoting their business, and honestly, if designer's want to run the risk of their work going unpaid (maybe to get experience), that's cool too. I just don't want naive designers to mistakenly feel this is their ticket to fame and fortune - get out there and get your own clients, guys.
PS - Not trying to cut on the single's cruise industry - never done it, never will. (it just made for an easy example).