It can do - as others have said, there is a lot you can get away with with brilliant results if you manage to go undetected, and the linking pages' metrics are good enough to fool search engines about their quality. Spam still ranks - "churn and burn" link development (where you cycle through throw-away domains, ranking one for a short period for a highly-profitable keyword, putting a new site in its place when it is penalised / banned) still legitimately works too, but is obviously not most people's idea of a great long-term business plan if they have any desire to build a brand or use their online brands offline. But if you rank top-three for [buy cialis] for two weeks with a domain you spend $9 on and link development you can spin easily for new sites, you will come away with a healthy profit.
Not saying this is what your competitor is doing, and engaging in outright spam is a bad idea if you don't plan to ditch domain after domain, but it can absolutely still work if quick rankings are all you care about.