The Atlantic Club

New Jersey Online Gambling: Failed Showboat Purchase Lawsuit Continues

Claims and counterclaims continue to be filed in the legal case connected to Kentucky-based Churchill Downs failed attempt to enter the US-based online gambling sphere by joining in the planned purchase of the soon-to-be-shuttered Showboat Atlantic City Hotel and Casino, in an interesting story whose roots can be traced to PokerStars’ initial failed attempt to enter the US market through the purchase of the now-closed Atlantic Club Casino.

atlantic-clubThe Showboat, one of four Caesars Entertainment-owned properties in New Jersey’s historic Atlantic City gambling locale, is scheduled to close permanently on Labor Day weekend.  As with the Atlantic Club, the Showboat was the subject of extended sales negotiations that for various reasons, failed to come to fruition.  In the Showboat’s case, the collapsed purchase attempt has resulted in a lawsuit by Churchill Downs, Inc., owner of the vaunted Kentucky Derby horserace and other gambling properties. against the planned direct buyer of the Showboat.

Churchill Downs, Inc. filed suit against Nicholas L. Ribis and his personally owned NLR Entertainment, LLC entity in February, once the planned purchase of the Showboat from Caesars collapsed.  As reported in outlets such as the Louisville Courier-Journal, Churchill Downs entered the picture as a planned service provider, hoping to contribute the online-gambling infrastructure necessary to launch a new online-gambling platform.

As part of the plan, Churchill Downs agreed to advance $2.5 million in earnest money to Ribis and his NLR entertainment entity to lock up a planned spot in the casino deal, with the promise of $7.5 million more immediately after Ribis and Caesars signed on the dotted line regarding the planned Showboat sale.

Meanwhile, Churchill Downs was busy working on that infrastructure back in Kentucky, where it had negotiated a million-dollar tax break from the state for the purpose of creating as many as 50 new jobs, 30 of which it already filled as the company began developing its new online platform, which would have debuted in New Jersey.

Except… it never quite came together.  Sometime late in 2013 the Showboat deal fell through, for reasons that have yet to be publicly explained.  One of the likeliest possibilities is that at the last moment, Caesars upped the price.  A key element in the lawsuit is the claim by Churchill Downs that Ribis attempted to get the $7.5 million secondary payment from them to help close the purchase from Caesars.  Churchill Downs claims in its suit that the request from Ribis runs contrary to the language of the deal, in which the $7.5 million extra was due only after the casino purchase was actually signed.

That’s where the story gets interesting, but where, in the Kentucky media reports, it stops.  Ribis, you see, is also the CEO of Resorts International Holdings LLC, part of Colony Capital LLC, which is the company that owned the now-closed Atlantic Club.  The Atlantic Club, to refresh this part of the tale, was sold to PokerStars parent Rational Group in late 2012, only to see the very same Resorts International Holdings, Inc., CEO’d by Ribis, back out of the deal by enforcing a technicality regarding the application process and a lapse in the procedure by PokerStars.

The odd part of all that, regardless of the tens of millions in lost investment by Rational Group, was how Resorts International and Crown Colony turned to publicly bad-mouthing PokerStars just months after agreeing to sell the Atlantic Club to the UK-based firm.  The reversal came amid massive indirect intervention by the American Gaming Association, which took it upon itself to publicly bash the PokerStars casino-ownership application in New Jersey while providing the state’s regulators with thousands of pages of documentation the AGA claimed proved PokerStars’ unsuitability for a license.

But in all that, the Atlantic Club then went without a real buyer, and became the first of what may be as many as four Atlantic City casinos to close its doors, throwing over a thousand casino employees out of work.  The casino was finally sold for $1.46 and a box of paper clips (okay, it was $23.4 million) to Tropicana and Caesars, which divvied up the property’s physical assets as the casino’s doors were nailed shut.

Resorts International Holdings LLC might have been out of the casino business with the Atlantic Club’s closure, but it’s not at all clear that CEO Ribis intended to be out of the casino biz himself.  According to the timeline in the Churchill Downs lawsuit, Ribis and his business associates contacted them about the possible purchase of the Showboat in July of 2013.  That was five months -before- Tropicana and Caesars officially purchased the Atlantic Club and closed it, but exactly in the middle of the unexpected reversal from Ribis’s firm regarding the once-planned PokerStars purchase.

It’s not too hard to look at the pieces and infer that a gentleman’s agreement of some sort was reached, in which Ribis would be allowed to purchase the Showboat if he helped keep PokerStars out of New Jersey.  Just don’t expect any official confirmation from any of the US players involved.

Adding to the scenario, once the Stars deal was successfully scuttled, Caesars may have found itself in a slightly more advantageous bargaining position.  Absent the Stars bid, the foundering Atlantic Club virtually had no alternative other than to close.  While the details about why the Showboat sale went sideways have yet to emerge, Caesars could have raised its asking price once Stars’ New Jersey fate was sealed, knowing that Ribis — and by extension, the planned Churchill Downs entry — could find their path to a New Jersey market entry made more expensive than initially expected.

Caesars, if it played out according to this scenario, would have helped narrow and reshape the New Jersey gambling market while actively getting rid of a couple of new, potential competitors, all in a single Machiavellian swoop.  It might have been a bit dirty, but that’s the nature of a contracting market, which certainly would describe the New Jersey casino scene.

We might learn if the above is close to how the events actually transpired, or we might not.  The Churchill Downs case against Ribis and NLR Entertainment looks like it’ll go on for quite some time.  Churchill Downs initially filed the case in Kentucky, but it’s since been removed to New Jersey, and each side has traded counterclaims in a secondary series of filings.  An actual trial has yet to be scheduled, though an initial motion to dismiss by Ribis has already been denied.

How it all affects the burgeoning New Jersey online gambling scene remains to be determined as well.  Despite the very interesting backstory, it’s unlikely a Showboat/Churchill Downs entity would have been a major player in New Jersey online poker, though it could have captured some market share in other casino games or in bringing more online horseracing and pari-mutuel options to the Garden State.

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