Skillz told a federal court on Monday that a federal grand jury was seeking access to information on AviaGames and its top executives in relation to Skillz’ allegations about defrauding players in skill-based games.
Skillz has alleged that AviaGames use of bots in its games — which are supposed to be matches between humans where real money prizes are at stake — constitute illegal gambling and fraud against consumers. The allegation has arisen in the course of a copyright and patent lawsuit between Skillz and AviaGames, which operates a rival to Skillz in skill-based games with real money prizes.
The new allegations of a federal investigation came to light this week in the course of 2.5 years of litigation between AviaGames and Skillz, which was a larger publicly traded company that discovered it was losing customers to the fledgling AviaGames startup. If what Skillz alleges is true, then a massive fraud is taking place, the company said in its filings. Players are betting cash on games in which they’ve been told they’re playing other people but where they’re actually playing bots.
Skillz was the early market leader, founded in 2012, while Mountain View, California-based AviaGames started in 2017. And Las Vegas-based Skillz Platform went public in December 2020 through a quick initial public offering process known as a special purpose acquisition company (SPAC). The company and early investors raised $848 million at a valuation of $3.5 billion. Net proceeds for Skillz itself were $240 million. But lately the company has been trading at a value of $123 million.
In a response to a request for comment about Skillz’ allegations, AviaGames responded, “Avia stands behind its IP, unique gaming technology, and the integrity of its executive team. The company is supporting a diverse, growing, and satisfied gamer community and will address all litigation matters at the appropriate time and place.”
Impact on Skillz’ financials?
Skillz alleges AviaGames has directly impacted Skillz’ financials in a negative way by offering a product built on a clone of the Skillz UI, marketed using Skillz ads, but rigged to steal from the players. After the Skillz IPO, AviaGames raised $40 million in funding, allowing it to scale by allegedly defrauding players who play against AI rather than genuine human players.
AviaGames claimed to have paid out $1.4 billion in prizes as of 2022. But it’s unclear if those were ever paid out as the “winnings” went to the house. AviaGames said that it has had over 20 million consumer downloads of its applications and it had 3.5 million monthly active users in July, according to measurement firm Sensor Tower.
“Avia has defrauded consumers for over $1 billion using AI. The number of victims and scope of the fraud grows every day as Avia’s top two games are both ranked in the top five casino games on the app stores. We will not stop until we eradicate bots from the whole industry – not just Avia Games. It’s consumer fraud and it must be stopped,” said Andrew Paradise, CEO of Skillz, in a statement.
Why the stock collapse?
While AviaGames has said Skillz lost market share due to competition, Skillz itself suspected something was amiss and sued for copyright infringement, patent infringement and unfair trade practices in April 2021. Big Run Studios, which made games on the Skillz platform, also joined the lawsuit.
They alleged that AviaGames copied Skillz games and passed them off as its own. The litigation made its way through federal court in California until more evidence came to light about “rigged” games. Skillz pits one human player against another human player for real-money prizes. This isn’t considered gambling because it requires skill for one side to win, and skill-based games are legal in 41 states.
Both AviaGames focused on skill-based games on mobile devices and mobile esports tournaments in simple games from solitaire to bingo. The fun is showing off your skill in competition against other players.
While Skillz had the head start and more capital, AviaGames got traction. Started by Vickie Chen and Ping Wang, AviaGames developed and published the Pocket7Games gaming platform in 2019 with a vision of creating a top global game competition platform that’s easy for everyone to play and win cash prizes. It started with 10 skill-based games, all available within a single app that players downloaded once.
In April 2021, AviaGames raised $40 million in a round led by ACME Capital, Washington Harbour Partners and Powerhouse Capital. Previous investors such as Makers Fund and Galaxy Interactive also participated in the round. Hany Nada, the cofounder of ACME Capital and a veteran game investor, joined AviaGames’ board of directors.
As the lawsuit proceeded, But then players who played games on both platform noticed that while they could win against other players on the Skillz platform, they were losing in the same or similar games on the AviaGames platform. In other words, the players on AviaGames were remarkably more skillful. The players started leaving one-star reviews on AviaGames’ Pocket7 app.
Bot allegations
Then, in May 2023, lawyers for Skillz found interesting information in the discovery process. Federal judge Beth Labson Freeman in San Jose, California granted Skillz the opportunity to review AviaGames’ internal communications and source code that relate to the use of bots.
In an order authorizing the reopening of discovery, Labson Freeman said, “AviaGames shall produce all documents and communications, including source code, that refer to, bear on, or relate to AviaGames’ or Pocket7Games’ use of bots.”
The judge also said, “AviaGames shall produce all documents and communications from all sources, including but not limited to Lark, WeChat, messaging on personal devices and any other messaging platforms used by AviaGames and AviaGames’ employees regarding AviaGames’ or Pocket7Games’ business practices.”
On Monday, AviaGames asked the judge to reconsider an order to turn over 89 documents in the discovery process, citing attorney-client privilege. AviaGames filed an objection.
Code names for bots
They got accesss to internal AviaGames text messages and found messages describing bots on AviaGames’ platform, referred to in code messages as “guides” and “cucumbers.” Skillz sought permission to update its complaint in the copyright case.
The new exhibit filed in court alleged AviaGames is “a corrupt organization engaged in an illegal gambling operation” that was using “ill-gotten technology to induce players to pay money to compete in rigged games.”
The judge also said it appears that AviaGames’ CEO Vickie Chen knew of this. AviaGames has disabled the “Terms of Service” and “Player FAQ” links on its website.
Skillz’ attorneys have asked the court for access to communications between AviaGames and their attorneys, which ordinarily would be privileged. However, under something called the “crime-fraud exception,” the documents could be turned over. This issue is still before the court.
Skillz said this week it received a criminal grand jury subpoena from the Justice Department “relating to Avia’s use of bots,” according to a redacted motion it filed seeking permission from the district court so that it could comply. Such records could be turned over if a crime-fraud exception were granted. AviaGames has told the court it should not have to turn over the communications.
Big Run Studios and Skillz Platform are demanding compensation from AviaGames. In the original lawsuit, the companies said AviaGames copied their Blackout Bingo to launch Bingo Clash. Bingo Clash debuted in August 2020 and the companies alleged it was virtually identical to Blackout Bingo. The game allegedly duplicates the sequence, structure and organization of the Big Run Studios game and has individual screen displays that also mimic the other game.
AviaGames said that when players are matched with others in BingoClash, the company matches them with players at the same level.
Skillz also said that AviaGames approached it in 2016 to build a game for them. AviaGames signed up to be a Skillz developer and received support through the developer portal. In hindsight, Skillz said that was a ploy to gain more information to copy.