For starters there are these dilemmas:
1 Prize Pot or Several?
Human Characters or Animal Characters or Both?
How Many Characters?
Should I even have this contest?
How to protect the art?
How long the contest should be?
How should I distribute/calculate prizes?
I say have one big prize pool made up of say a few bits of tu, pets, items, whatever youd want to put in there. And have the three prizes so first picks say three items, next picks two and so on.
And id say do whatever youd be after art of, you could also do human versions of pets, theyre always cool. And id say limit it to like four characters, because otherwise judging is hard.
Yes, yes you should have this contest.
Protect the art by having them put their siggy somewhere near the pet e.g. In a spot that cant be photoshopped out.
Make it like a month so it gives people time to create good art.
See about about distributions, dont make it a lucky dip, make it a pick and mix.
Also have it so that maybe people can only enter with one type of character so you dont get someone doing really good art of all the things you want drawn, because then youd maybe feel like theyd get em all. You could also have a different prize for each character idk.