This would work if you paid up first. Like, commit 10 wii points to play, then the winner takes all kinda thing. If you wait until after the match and then expect the losers to pay, yeah, that won't happen. You'd need some kind of setup online where you commit your wii points ahead of time, then after the match, declare a winner, and then the points are xferred to their account. You'd also need Nintendo to sanction such an event logistically speaking. And their whole "Fun" thing would make playing for money or even wii points unlikely.
As for the Lag excuse, well, that's a given. You wouldn't go into the match expecting different. As a daily online brawler I've learned to use the lag to my advantage >< I've also learned several tactics which render a victory given a 2 minute match with Items in any stage.
If you were to also change that up, and make it more competitive, with stock matches and Items off, etc... you'd attract more players, but they'd still have to be used to online lag in order to have a real chance against people that are used to it.
