First off, you'll need to make sure there's a market for people wanting to enter. No market means limited contestants, limited contestants means less profit, possibly even none.
Second, figure out what supplies you have already (xboxes, networking gear, suitable TVs), and what you need. For what you need, call around nearby rental places; see what you can rent, and what you have to buy. I highly suggest you get uniform TVs - if somebody playing on a 27" tv loses to somebody playing on a 42", they're going to blame the loss on that.
Third, settle on rules - what games are going to be around for fun, what games around going to be used in the competition - and what are the rules of the competition?
Fourth, settle on a location - The bigger the room, the more people you can fit in, but the more expensive it gets.
Fifth - prizes. Settle on some basic prizes - this sould be your base list, and not include any potential donations from sponsors (more on this later).
Sixth - bonus revenue. What can you do to make some cash from something other than entrance fees? Snack bars are a plus. You can score a box of several hundred glow bracelets/sticks/necklaces on ebay for cheap (usually under $50 shipped), if you're playing in a dark room, these sometimes go quick. Don't allow any outside food or drink, have pizza, soda, and popcorn available.
Now, tally up the total cost involved. That's how much you need to make to break even.
The next step is to start advertising, and looking for sponsors. Local game retailers might be persuaded to donate a console if their logo is on the fliers, or if they can set up a table to sell games at. Some companies sponsor LAN parties with free schwag for prizes (ATI does this for PC LAN parties).
Set a realistic goal for the number of players you want, and set ticket prices accordingly to cover initial expenses.
Finally, come up with a creative name. Somebody near where I live hosted a PC LAN competition named "ThanksGibbing" - $8 to get in, then a $5 a plate food deal with turkey, potatoes, etc. Oodles of fun. Just have a theme unique, something besides "FragFest 2k5"
