Simon Cowell Spends $500K On X Factor Finalist

It all went down in Miami ... where the 160 wannabes who made it past the audition rounds are competing for 32 coveted spots.

Sources tell us ... Cowell -- who created the show -- decided he wanted to reward the contestants for making it this far ... and didn't want them slumming in a "regular" hotel.

So he upgraded ALL of the contestants to the exclusive Mondrian Miami South Beach Hotel ... and promised to cover everyone's meals during the audition process.