Skillz, the mobile gaming platform known for its competitive tournaments, is fighting a battle that goes beyond typical business competition. CEO Andrew Paradise is on a mission to expose and eliminate what Skillz believes is a widespread problem in mobile gaming: bot-driven fraud. This fraud involves players competing against AI opponents disguised as real people.

The Scope of the Problem

Skillz estimates that bot-driven fraud has already cost consumers over $1 billion. The companies accused of this practice, including AviaGames and Papaya Gaming, have millions of players and billions of tournaments, and their games are highly ranked in app stores.

Legal Battles and Industry Reform

While Skillz won a $42.9 million jury award against AviaGames for patent infringement, this is only the first step in a larger fight. AviaGames is also facing a federal grand jury subpoena and a class action lawsuit from players, but continues to operate with bots allegedly still in use.

Skillz has filed a lawsuit against Papaya Gaming and is involved in class action lawsuits against both AviaGames and Papaya Gaming, showing a commitment to addressing this issue. Paradise has been outspoken about the potentially criminal nature of these practices, highlighting the deceptive marketing and the erosion of player trust.

""Our goal has been to reduce competition, but rather to ensure a level playing field for all companies in our industry maintain the same level of commitment to providing a transparent and fair player experience. Skillz will continue to combat the disruptive usage of bots until systemic further industry is eliminated. Creating a better future and gaming is good for consumers, our industry, as well as for Skillz." - Andrew Paradise, Skillz Q1 2024 Earnings Call"

The Impact of Bot-Driven Fraud

The consequences of bot-driven fraud are significant. It not only directly affects Skillz's ability to acquire users, but also distorts the entire industry's economics. The cost of user acquisition is artificially inflated, as legitimate companies like Skillz have to compete against fraudulent operators. Trust in the gaming ecosystem is eroded, leaving players feeling cheated and disillusioned.

Skillz's Path to Profitability

Despite the challenges, Skillz is optimistic about reaching positive adjusted EBITDA by the end of the year. The company is focusing on achieving an industry-leading 6-month user acquisition payback period, which would be 2-3 times better than the industry average. Skillz has been cutting user acquisition spending, optimizing its digital marketing, and is now seeing paybacks nearing this 6-month target.

The Potential Upside of Industry Reform

If Skillz succeeds in exposing bot-driven fraud and prompts industry-wide reform, the potential benefits are huge. Customer acquisition costs would decrease as competition with fraudulent operators diminishes. Player lifetime value (LTV) would increase as trust in the fairness of games is restored.

Hypothetical Scenarios

The following table outlines potential scenarios for Skillz's future revenue growth.

Reference: Hypothetical scenarios based on information from Skillz earnings call transcripts and industry analysis.

Adjusted EBITDA Trend

The chart below illustrates Skillz's adjusted EBITDA trend.

Conclusion

The fight against bot-driven fraud is not just about correcting a wrong, but also about shaping the future of mobile gaming. Skillz's stand against this practice is not only for its own benefit but also for the integrity of the entire industry and the trust of millions of players. If the company succeeds, the rewards could be game-changing.

"Fun Fact: The global mobile gaming market is estimated to reach $286 billion by 2027, highlighting the massive potential for growth in the industry. Source: Statista"