The Kentucky-based racetrack operator Churchill Downs Inc. (CDI) is suing an Atlantic City businessman for allegedly defrauding the company in a deal that would have allowed CDI to set up its own online gambling site in New Jersey.

In a lawsuit filed earlier this week, CDI claims that casino executive Nicholas Ribis continually led it to believe that he would soon purchase the Showboat Atlantic City Hotel and Casino, but the deal never materialized.

In anticipation of the sale, Churchill paid Ribis’ company, NLR Entertainment LLC, a $2.5 million “earnest money” deposit that was to be followed by an additional $7.5 million at the close of the transaction, no later than January 31.

By all accounts, CDI was quite serious about entering the New Jersey online gambling market. The Kentucky news outlet WDRB reported that along with the multimillion dollar deposit, the well-known racetrack brand had spent $10 million to purchase intellectual property and hire more than 20 engineers to develop its i-gaming platform.

Part of that sum might have been used to acquire Atlanta-based Bluff Media, which CDI purchased in 2012. “The company believes this acquisition potentially provides it with new business avenues to pursue in the event there is a liberalization of state or Federal laws with respect to internet poker in the United States,” the company said on its website.

Showboat would have served as Churchill’s land-based casino partner, with CDI being the property’s “exclusive online vendor,” operating under the company’s Churchill Downs Interactive subsidiary.

This would not have been CDI’s first foray into online gaming, either. The company has already launched its own internet betting service called TwinSpires.com, which allows customers to wager on horse races from computers and mobile devices.

Churchill has also been developing software infrastructure that would facilitate its entry into the New Jersey gaming market. “CDI’s investment in online wagering technology and customer support systems also positions the company to take advantage of additional internet gaming opportunities, such as online poker,” the company said.

Showboat is one of four casinos owned by Caesars Entertainment in the Garden State. Each of those four properties has qualified for a license to operate online gambling and been allotted up to five online domains. But while sites like HarrahsCasino.com, WSOP.com, and CaesarsCasino.com are already up and running, little has been said about Showboat and rumors have swirled that the casino was on the market.

In August of last year, Ribis was spotted touring Showboat (pictured) and a local radio station speculated that a sale of the property was imminent. “I have known Nick Ribis, Sr. for more than 32 years,” said Harry Hurley of WPG1450. “This much, I’m sure of: Ribis is not visiting the Showboat today to simply have a nice lunch.”

A former lawyer, Ribis is no fly-by-night scam artists. The businessman is well-known in the state and has served in many capacities within the gambling industry, with local press describing him as a “fixture in the Atlantic City casino industry for the past 35 years.”

A 2005 CNN Money article bestowed Ribis with the title of “Cheapest Casino King in Vegas,” referring to his ability to reform distressed properties for big profits. “In just three years, Ribis has built privately held Resorts International Holdings into the fifth largest gaming company in America, cobbling together an array of aging, once-golden names,” it said.

Yet at some point, the Showboat deal went south. And now, Churchill is demanding the return of its $2.5 million deposit and is suing for unspecified damages that will be determined at trial.

Want the latest poker headlines and interviews? Follow PocketFives on Twitterand Like PocketFives on Facebook. You can also subscribe to our RSS feed.