For the last two years, Zoo Press has accepted reading fees of $25 for each submission to its short fiction contest and failed to come up with a winner. The small press shtick wears thin when there’s an entry fee involved.
Here’s what I learned in law school: offer (contest announcement) + acceptance (submission of story) + consideration (money) = contract. Take the money, pick a winner.
Update: But in this case the guidelines seem to give the press a way out.