Bots, Bankruptcy, and Binary Options
I remember the real Atlantic City, before the casinos arrived. My Mom’s aunt lived there, near the bend of the Boardwalk, and we would visit her for a week or so almost every summer. In addition to going to the beach by day, I would go to the Boardwalk in the afternoons and early evenings to waste what little money was in my pre-adolescent pockets at the arcades by playing Pokereno, Skee-Ball, or Fascination. I accumulated enough coupon tickets to redeem for various tzatzkes, always including “Magic Snakes” fireworks pellets.
But Atlantic City had already begun a decline from its heyday. Following the return of military veterans following World War II, who had furthered their educations and skills as a result of the so-called “GI Bill,” the American middle class had grown increasingly affluent. More households became automobile owners; their newly-gained mobility enabled many of them to drive their own cars to Atlantic City for day trips or a single overnight stay instead of arriving by train or bus for an extended vacation, thereby cutting down on the hospitality business, not only in the established hotels, but also for the many individual homeowners (including my Mom’s aforementioned aunt) who took in vacationer guests as a side income.
Although the race riots that swept the United States during the 1960’s did no considerable damage in Atlantic City, there nonetheless was palpable racial tension to be felt there, which discouraged many people from vacationing in Atlantic City and choosing instead other seashore resorts where racial tensions were markedly less. Moreover, Atlantic City, then as now, was susceptible to the storm damage during the hurricane season. A storm in March 1962, although never reaching hurricane status wind speed, inflicted much damage from the wind and the tidal surges.
Amidst all the economic uncertainty, the banks were reluctant to extend loans, and so, many damaged properties were never repaired. When my wife and I visited Atlantic City in 1988, I saw that a land parcel near my aunt’s house, vacant for as long as I could remember from my pre-adolescent days, had remained undeveloped.
After years of economic decline and infrastructure deterioration, the most important election in the history of the State of Nevada was held in 1976, in which the New Jersey electorate voted in a referendum election to allow casinos in Atlantic City. The vote was approximately 57 percent in favor to 43 percent opposed. Prior to that, games of chance were prohibited in New Jersey; the Skill Pastime arcade on the Boardwalk where I played Pokereno had earlier, in 1951, been compelled by the court to discontinue its Bingo games because Bingo was found to be a game of chance. But Pokereno, Skee-Ball, and Fascination, all games of skill, were permissible.
The 1976 New Jersey referendum gave Atlantic City a great economic stimulus, while imposing competition to Las Vegas as a US casino locale; other states would soon legalize casino gambling.
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With the subsequent commercialization and growth of the Internet, entrepreneurs have erected websites where games of all types can be played. But Internet game purveyors who sponsor online gambling face the prospects of legal entanglements because games of chance remain restricted if not prohibited in many jurisdictions. Internet game purveyors therefore have taken pains to ensure that the pastime activities on their websites are games in which the outcome is predominately if not totally determined by the skills of the participants.
One such entrepreneur is Skillz Platform, Inc., which, from its founding in 2012 in Boston, developed innovative technologies for “head-to-head” online real-time competition events. The outcome of those events was (and still is) determined by the skills of the competitors. Skillz grew into a major business in the real money skill-based mobile gaming industry.
Tel Aviv based Papaya Gaming was founded in 2016 and achieved great success in the mobile gaming industry, with more than 90 percent of its players being United States residents. Papaya grew its market share in a large measure by drawing players who had formerly been playing on Skillz’s platform.
In 2024, Skillz sued Papaya in US federal district court in New York City, claiming false advertising under the Lanham Act. It had come to Skillz’s attention that Papaya used autonomous computer programs (“bots”) in its online tournaments in lieu of actual human competitors. The implications of this were that Papaya had an interest in the outcome of its tournaments because each time a “bot” player wins, Papaya does not need to pay out winnings to anyone. Moreover, Papaya effectively denied that it was using “bots,” a fact upon which Skillz hung its false advertising claim; Papaya executives eventually admitted that they in fact had used bots.
The case went to trial and on 23 May 2026, a jury in New York found that Papaya was liable for damages to Skillz in the amount of $420 million. The jury also gave an advisory verdict that Papaya should disgorge $719 million to Skillz for its additional profits gained from its false advertising, and additionally disgorge $652 million to Skillz for Papaya’s cost savings resulting from its false advertising.
Papaya made post-trial motions that it be granted judgment as a matter of law, and that it be given a new trial. Those post-trial motions were denied. Skillz, for its part, made post-trial motions for attorney fees, litigation costs, and disgorgement remedies. Ruling on those motions, the judge followed the jury’s advisory recommendation to disgorge to Skillz $719 million in the additional profits, but declined to award disgorgement for the cost savings. The judge also awarded attorney fees and litigation costs, but in amounts less than those requested by Skillz.
Papaya has announced that it would appeal the judge’s rulings.
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Although I am not actively participating in the litigation, my professional duties have given me cognizance over the case; my knowledge is limited to what is in the public record. Based upon what I know, I see little chance that Papaya can win its appeal on the merits. Judge Denise Cote set forth the detailed rationale for her ruling in a 78-page opinion. Her Honor did not give Skillz all that it requested. Moreover, Papaya’s hands were far from clean, not only in its use of “bots” in its conduct upon which Skillz brought the lawsuit in the first place, but also “because of the unreasonable manner in which Papaya litigated the case in 2024 and 2025. This litigation would have cost both the plaintiff and the defendant only a fraction of what it did in 2024 and 2025 if Papaya had complied forthrightly with its discovery obligations. Instead, Papaya slow-walked and obstructed the production of critical discovery material through the entire discovery period.”
Though I am not privy to Papaya’s attorneys’ litigation strategy in bring the appeal, it would seem that they hope to reach a settlement with Skillz for a lesser amount than the total amount exceeding one billion dollars that now stands from Judge Cote’s rulings. Conversely, if, during the appeal process, Papaya’s new attorneys engage in similar tactics to those used by their predecessors, Skillz might conceivably have a basis for an additional award of costs.
There can be little doubt that Papaya will be hit with much financial detriment from this judgment against it. Regardless of how the appeal goes, there is much to suggest that the judgment threatens Papaya’s continued existence. How this one will ultimately play out is anyone’s guess; Skillz might well be unable to actually collect some or all of the court’s judgment.
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The Skillz-Papaya litigation has implications rooted in a dark aspect of Israel’s recent economic history. Shortly after my Aliyah eleven years ago, one of my fellow students in the ulpan course I was taking propositioned me and other classmates regarding employment selling binary options. From what little I had heard back in the USA regarding binary options, I did not feel comfortable being involved in them, and so, I politely declined to pursue the matter any further.
My financial market involvement at the time was preoccupied with a “widows and orphans” investment – the widow being my mother and the orphan being myself. I was Trustee of the Medicaid trust on whose income my mother was living, and the remainder corpus of which I, as Mom’s last surviving child, stood to (and eventually did) inherit. I concluded that binary options were not appropriate for me or my mother to depend upon, being that they were and are (1) too high of a potential risk; (2) an industry not well known compared to other financial investment markets; and (3) an industry especially prone to abuse, yet not adequately regulated by the authorities.
Fortunately for me (but unfortunately for Israel as a whole), my instincts were vindicated. I had underestimated the evil nefariousness of the corrupt binary options industry in Israel and elsewhere. Witnesses at Knesset hearings recounted the unethical practices that pervaded the world of binary options, notably including giving binary option investors whose accounts should have positive balances all sorts of excuses for not promptly processing requested withdrawals of money from those accounts (if such withdrawals were remitted at all). The Knesset hearings induced the belated enactment of stronger laws to rein in the industry. The frauds perpetuated from offices in Tel Aviv had extended beyond the borders of Israel, soiling the good name of Israeli finance industry. Indictments and prosecutions were brought in the United States against several Israeli citizens, and as a result, there now are Israelis incarcerated in American prisons (not undeservedly) at a time when violence against Jews and Israelis is on the rise.
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Papaya’s ten-figure dollar obligation from this lawsuit (which almost certainly will include interest charges) helps neither Israel’s economy nor its international economic credibility. The Ministry of Education is instituting a new financial literacy curriculum for the coming school year. Education Minister Yoav Kisch has touted the diverse and multifaceted topics in the new educational program as “an important and welcome step in preparing the next generation to face the challenges of the world outside.” There are many ethical lessons to be learned from the Papaya bots fiasco, and from the binary options debacle. These should be integrated into the new curriculum.
As for Papaya, its people have shown expertise in duplicity and in bot technology, apparently even programming Papaya’s bots to deny that Papaya uses bots. Perhaps those skills could be put to better beneficial use as weapons in Israel’s cyberwarfare efforts.
