The online gambling world has opened up for some states in the US, and gambling company Churchill Downs is looking to join in. Despite initial investments and development, however, fallen deals have created a major setback for the racing giant.
Gambling Changes in the United States
Contrary to the practices of many other Western countries, the United States has held a ban on all forms of gambling online. In December 2011, however, the Justice Department relaxed its position of this federal law prohibiting interstate gambling. It kept this ban only for sports gambling, making other forms, such as poker and other casino games, acceptable. Interstate gambling for horse races is allowed under a separate law. H2 Gambling Capital, a consulting firm out of England, predicted that by 2017 the United States may account for up to 30 percent of the world’s online gambling market.
Enter Churchill Downs
These changes have inspired a number of ventures by gambling organizations in the United States, including Churchill Downs Inc. Based in Louisville, Kentucky, the horse racing and casino company has attempted to join the highly successful market for online poker and other casino games that has been made legal in three states. Somewhat surprisingly, though attempts to erect brick-and-mortar casinos in the state have fallen through for years, the company planned to begin its journey into online gambling in its own city. Churchill thus added over 30 employees in Louisville to develop the system.
A Fallen Deal
News of the development came from a lawsuit filed by the company over an unsuccessful attempt to enter the online market in New Jersey. The lawsuit claims the Jersey business associate misled the company about his ability to fulfill his obligations as per the agreement. The system developed in Louisville was set for a launch last April upon successful completion of the deal. The essential technology for the system would remain in Louisville with some infrastructure in New Jersey, in order to comply with state law.
Churchill Downs spent over $10 million to develop its system, one that would take online bets from New Jersey casino customers as well. This process involved hiring over 30 employees, including 20 engineers, for completion. The company paid NLR Entertainment, under Nicholas Ribis, $2.5 million in exchange for his purchase of the Showboat Casino in Atlantic City. Purchasing the casino from Caesars Entertainment Corporation would facilitate Churchill’s ability to expand upon its online gambling ventures. Upon buying the casino, Ribis would have received an additional $7.5 million, and the company would operate the casino’s online system from Louisville. The deal was necessary for this plan as New Jersey law reserves the online casino market for those that own land-based property.
Churchill is suing for return of its initial $2.5 million, claiming Ribis misled the company for months about his ability to finalize purchase of the casino. In response, Ribis says he needed the total amount of $10 million to complete the deal and the company was made aware of the fact. The company denies this, saying the $7.5 million was agreed to be paid after Ribis had secured the Showboat. The businessman also states that the company has slandered him to peers of the casino industry by denouncing him as a “thief” and “fraud” that could not be trusted, claims Churchill also denies.
Independently of the lawsuit, Caesars Entertainment announced it would close the casino and would be willing to sell the property to another company. Churchill is still continuing its plans to join the online casino market, yet expects to take a more long-term approach.