Skillz Prevails Against Rival Papaya in Court, Jury Awards $420 Million
Skill-gaming company Skillz has successfully persuaded a New York jury in its false advertising case against Papaya, which makes similar products. The jurors recommended $420 million in damages and provided potential disgorgement figures of $719 million and $652 million, which Judge Denise Cote will take into consideration in delivering her final ruling this summer.
That ruling isn’t quite a sure thing, as Papaya still has some legal recourse available. In post-trial conferences, it may argue for a mistrial or a smaller judgment. If Judge Cote, considering the totality of the case, arrives at a disgorgement sum that’s higher than the $420 million in damages, Skillz would have the choice of one or the other, but not both.
In a statement to Gaming America, Papaya wrote:
“While Papaya respects the jury’s decision, we are disappointed with the outcome. We look forward to court review of the verdict. Papaya will continue to lead with integrity and transparency while remaining focused on our mission to deliver joy through exciting skilled-based [sic] fair competition.“
Papaya and Skillz both rely on the skill element of their games to avoid being legally defined as gambling. Nonetheless, some state regulators are cracking down on the skill loophole, both in this app-based format and slots- or arcade-like retail devices.
False Advertising Claims Focused on Fairness
Such claims of being “skill-based” and “fair” were at the heart of Skillz’s lawsuit. During the discovery phase of an intellectual property case against another similar company, AviaGames, Skillz discovered that its rival had matched human players with house “bots.” After settling that case for $80 million, Skillz hired a third-party research company to test whether Papaya was doing the same thing.
Once those accusations came to light, Papaya also faced lawsuits from players. However, Skillz’s suit doesn’t concern the use of bots per se. Rather, Skillz’s arguments hinged on the idea that it had lost business to Papaya and would not have done so if Papaya had not falsely represented that its games were fair and skill-based, when some matches against non-human opponents were set up to have a predetermined outcome.
Papaya was eventually forced to admit that it had, in fact, used bots up until November 2023, but had discontinued the practice after that point. Unlike in the AviaGames case, the Papaya and Skillz failed to reach a settlement and fought the trial to its conclusion.
The legal tack taken by Skillz sets an interesting precedent now that it has been borne out by a jury. Assurances of fairness are common in gambling and related industries, and Skillz has shown that it’s possible to argue successfully that rival companies, and not only players, are harmed when those assurances prove to be false.
Skillz Stock Shows Signs of Life
The result will be bittersweet for Skillz, which remains in financial distress despite prevailing in court.
A representative for Skillz told Gaming America:
“Skillz is pleased with the jury’s verdict and the actual damages award of $420 million in our litigation against Papaya Gaming. Skillz proved at trial that Papaya used bots in its games, which is the issue at the core of Skillz’s claims around false advertising, deceptive trade practices and transparency in the skill-based gaming industry. Papaya conducted a multi-year campaign of fraud and false advertising that materially damaged Skillz and the skill-based gaming industry.”
On paper, $420 million would be a game-changing windfall for Skillz, which had a market capitalization of only about $60 million before yesterday’s news.
When the jury’s decision was first announced, Skillz shares (SKLZ) nearly quadrupled, from around $3.50 to a peak of $12.91. However, shares are back down 37% in today’s trading. Although the current price of just under $8 is more than double what it was a week ago, it’s a far cry from the company’s early days. Skillz debuted at around $200 and spiked briefly to more than $800 in early 2021. Its fall from those highs to an all-time low of $2.23 has itself been the subject of plenty of legal drama.
If Skillz actually receives the $420 million — or an even larger disgorgement — it would go a long way to bailing it out of its current predicament. However, the volatile reaction by investors suggests uncertainty over how much of that money it will actually see.
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