I take costume contests pretty seriously.

Costume contests are usually judged at midnight by a drunken crowd of zombie firefighters and sexy bumblebees. I've been on stage for a dozen such contests, and I would like to write a little guide to help people conducting costume contests which are fair and fun. Most of these guidelines were formed by participating in the giant "Zone Ball" in Sacramento, California.

Pre-judging
Many, many people may have costumes on, and they may wish to be in the costume contest. Not everyone can be in the contest, so it is important to pre-sort the cream from the crop. At the largest parties (>2,000 people) a good way to pre-judge is to set up a small "costume auditions" mock stage that everyone can walk across, staffed with a person or persons who can decide which 10-25 people have superior costumes. Reward the best costumes with a zip-tie bracelet, "Door Prize" tag or other unloseable token. You may also wish to write "11:45" on the bracelets, as a reminder of when the main costume contest will take place. If you don't have resources for a costume auditions stage, award contest bracelets at the front door.

If any giant costumes are at the party but have not been pre-judged, send a representative to hunt them down and get them a bracelet. Giant costumes are notoriously difficult to maneuver and see out of, so they may have missed the fact that there was a costume audition pre-screen.

Besides giving them a contestant bracelet, ask for the title of their costume and write it down. Sometimes their identity is not obvious, or their own description is more hilarious or accurate than your guess.

Separate the Sexy Ladies
When a drunk crowd of people is in charge, a wet, air-humping stripper can beat ANYTHING. If you do not want a gyrating slut to win the costume contest, you should separate the hot women (and men) into their own contests. The Zone ball has three contests in one: Exotic King, Exotic Queen and Costume Contest. I recommend this. If your pool of awesome costumes is too small to divide into three, you can limit the impact of a bootie-shaking performance by limiting their time in the spotlight.

The Main event: Preliminary rounds

Divide the contestants into three or four even or almost even groups, and get each group onto the stage for a first-round crowd judgment. You should have one or two microphone-wielding masters of ceremonies (MC) speaking to the crowd, and at least one other person helping wrangle the contestants into place. Line them up across the front of the stage and let the audience know that they will be judging the contest with the volume of their applause. Explain further that only the costume with the loudest applause will advance to the FINAL ROUND.

Start at one end of the stage and have the MC hold his or her hand above the contestant while announcing his or her costume name:
"JESSICA RABBIT!"
Wait for the applause to crest and die before moving to the next contestant. If the costumes are too giant to hold a hand over, just point to them.
"IRON GIANT!"

More often than not, the audience will take a few minutes (and a few contestants) to figure out what is going on, and the volume of their cheers will grow louder as the judging progresses. For this reason, the contest is weighed towards the people who are at the last position, at end of the stage.

The contest will also be more dramatic if the applause starts quietly and builds in a triumphant crescendo. For this reason, it is advisable to guide the very best costumes at the end of the stage, in the reverse order of who you feel should win.

When there is a tie or near tie, announce that there is a tie and that there will be a tie-breaker cheer between Jessica Rabbit and Iron Giant. Remind the crowd that only the costume with the loudest applause will advance to the FINAL ROUND. Announce the title of the probable loser first, "JESSICA RABBIT"..... "IRON GIANT" because the second costume announced in a tie-breaker will tend to get more applause.
Announce the winner of the first group.

At the end of the first group, usher the losers off stage but keep the winner in the wings. You'll bring the winner back onstage for the FINAL ROUND.
Continue bringing a second, third and fourth group on stage, until you have one triumphant finalist from each batch, and everyone has been judged by the crowd. Try not to allow the final group to be extra large or extra small. That would not be fair.
You should now have a group of 3, 4 or 5 finalists selected.

The Main event: FINAL ROUND
Bring your finalists out onto stage. Give them a bit of time on stage before you start the final round, and place them in order on stage without being too obvious about it. This is a great time to let them all pose onstage and to take official photos of them.
Announce that the finalists for the costume contest are now ready, and that the contest winner will be whoever gets the most applause, so they should cheer for which ever costume they like the best.
The MC should then start announcing their names again and holding his hand above their heads, from one end of the stage to the other, so that the audience can anticipate who will be next. The winner is the costume that gets the loudest applause. Tie-breaker rounds are common in the finals.

It will probably be obvious who the winner is, but the MC should still announce the winners in reverse order, (3rd place, then 2nd place, then 1st place). Let the winning costumes jump around a little on stage and then get them together to get their information.

If there is a large money prize, you will probably need to get the winners names and social security numbers for tax purposes. If you give them money at the event, consider offering to walk them to their car. Some contests with a cash prize require that the winner leaves immediately to avoid getting mugged in the parking lot.

And that is it! With any luck, the best costumes will be rewarded and the rest will have enjoyed their time onstage. Every contest has losers, so you may want to have drink coupons ready to soothe their egos.

Things to prepare for:
1. Group Costumes - Make a decision before your event if you want to allow group costumes. From Jay and Silent Bob to KISS to the Voltron Lions, some people are going to come into the event as a group. It might seem unfair to let them compete on the same stage as single people, but that is part of the game. In my experience, an audience will usually cheer quality, not quantity, so it usually works out.

2. Chanting - Sometimes an audience will start chanting the name of a costume, which will technically be less loud than raucous cheering, but should be considered "louder" because it requires more approval and enthusiasm than wild applause.

3. Performance - Make a decision before your event if you want to allow performances. Dancing can definitely electrify an audience, but it isn't a costume. Personally, there is nothing more frustrating than losing a costume contest to three dudes in plastic fangs who know how to break dance. Every costume contest (and wet t-shirt contest, for that matter) is a stage performance, but the performance should not be more important than the costume. If you don't want a performance to win, filter out cheerleaders and Thriller zombies in the pre-screening process, or limit their exposure by giving them an unfavorable stage position.

4. Floats - On stage, bigger is often better. The biggest costumes of all are "floats", which is a name for any costume with wheels. I've seen Thomas the Tank engine, "Ghost of the Titanic" and "Speedboat with water-skier". These are crowd-pleasers, and they always show an extraordinary level of craftsmanship and dedication. In my experience, floats are judged harshly by the audience because they don't fit the traditional "costume" criteria. You may need to consider a way to get a wheeled costume onto the stage.

5. The same folks showing up every year - Consider a rule against entering with the same costume in successive years. With a rule like this, Rob Cockerham is more likely to win.