HERE is a link that explains how the IRS defines Gambling. Basically the main point is that you have the risk of losing.
Therefore if someone won a prize, but they did not need to buy a ticket, (a name was drawn from a hat) that would not be gambling. So yes, if you had to pay to play, that would be gambling. You are at risk of losing.
Yes, you would indicate that gambling is a hobby. If you were a professional gambler, you would file Schedule C as self-employed and different rules would apply you how you claim the income.
As long as you're honest and have documentation to support what you report, you should report the loses, even if they are more than what you won. (only the same amount of loss will be allowed on Schedule A).
Lots of people lose as much or more than they win, that's why casinos make money.
HERE is an IRS Online Interview that might be helpful.
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