I'm a web designer, this same shit has been going on in our industry for awhile now. Logo Contests, Website Design Contests, etc.
The only designers who are willing to enter these kinds of contests are people who can't get a job as a designer or make it as a freelancer, so you are always going to get bad work. Always. No one with actual experience and skill is going to do work that they "might" get paid for, when they could be doing work they'll definitely get paid (a lot more) for. And then when they "win" the contest they're rewarded with a cheapskate client who doesn't respect the profession enough to pay for a site well-built & well-designed by professionals... assuming the client doesn't just take their free designs and disappear.
Anyway, my point is, if this custom tattoo design thing turns out anything like what I've seen in my own industry, it's only going to result in poorly designed or blatantly ripped off designs being taken to unskilled, cheap artists and producing an awful result. "You get the tattoo you deserve."
quick edit: Not to disrespect any artist that's participating, just wanted to say what I think will happen to this idea based on what I've seen of a similar idea executed in my own profession.