Wednesday, Oct 27, 2004
Woolwich is a long way from the Bahamas, where Butch Kerzner is based. This small part of south-east London is near water (the Thames) but that is about as much as it has in common with the sun-kissed Caribbean island chain.
Today, though, the chief executive of Kerzner International has been on Woolwich High Street with Tobin Prior, who runs the leisure group's UK business. They hope to develop a resort casino and hotel next to the Millennium Dome but, ahead of a meeting with Greenwich council leaders to discuss the project, Mr Prior remembered he was not wearing a tie. A stop at Marks & Spencer was needed.
Good relations with the local authorities will be an important factor in the success of Kerzner's Dome plans. More important is the UK government's gambling bill, which had its first reading in parliament last week. If, as expected, the bill becomes law next summer, gambling laws which have been unchanged for almost 40 years will be completely overhauled, making it easier and more profitable to develop large, Las Vegas-style casinos.
Given the chequered history of the Dome, the Kerzner casino project is certainly going to be high profile. It is not the only large-scale development the group is working on, however. Best known for Atlantis, the Bahamas hotel and casino complex which contains the world's biggest man-made aquarium and water park, Kerzner is embarking on the biggest international expansion in its short history.
Kerzner was founded by Butch's father, Sol, who created South Africa's Sun City resort. A larger-than-life character who continues to chair the company, Kerzner senior has left day-to-day operations to his son. Butch has overseen a push into the luxury resort business with the One & Only brand, which has six properties, including in Mauritius and Dubai, and three others in development in the Maldives, Cuba and Cape Town. He is also keen to expand the group's gaming interests in new markets, particularly the UK. Besides the Dome project, sites in Manchester and Glasgow have been earmarked for development.
"I really think we have the right model," he says. "We are not just about casinos. We develop lots of attractions around each property and we are into building entertainment products."
He has recently been in Singapore, where the government is considering relaxing gaming laws. "In the last couple of years the tourist numbers there have been a bit softer. The new prime minister shocked a lot of people by saying that everything was on the table to revitalise tourism and the convention business. Gaming could be part of that."
He adds that building a casino will not be enough if Singapore is serious about improving its tourism credentials. "The argument we make is that gaming by itself is just a commodity and could be a temporary shot in the arm. In order to develop a lasting impact for tourism we have to do something else."
He reiterates that the company his father founded is about much more than gaming. Current trends elsewhere in the market suggest that it will have to continue offering a broad mix of entertainment alongside its gaming products if it is to prosper. With Las Vegas, the world's largest gaming market, now making as much money from food, beverage sales and entertainment as it is from casinos, it is clear that 21st-century gambling businesses have to take a sophisticated approach.
Mr Kerzner says the Dome is particularly exciting. The casino will be situated inside the structure, while outside the company has an option to develop an hotel that could have more than 600 rooms. Near London's City airport and a short underground ride from the Channel Tunnel rail link, the site has the potential to attract tourists.
"We have a responsibility to develop architecture that can stand comparison with the Dome. If we can do it right it is a massive opportunity. If the new gaming legislation passes and if a casino project is approved in Greenwich - all of which are big 'ifs' - then I think the Dome has the potential to become a major UK and European entertainment and tourism hub," says Mr Kerzner.
Although the UK may be Kerzner's next frontier the group continues to have gaming interests in the US. In 1996 it established the Mohegan Sun, a Connecticut casino and entertainment complex, with the Mohegan native American tribe. Although it no longer has an equity stake in the development, one of the largest casinos in the US, it continues to take a share of profits.
The group no longer has any connection to Sun City, the South African resort founded by Butch's father, after Kerzner senior sold his stake in the business that catapulted him to international fame in the 1980s. But while the gaming, hotel and entertainment complex was a financial hit it was also a source of great international controversy; Sun City symbolised South Africa's problems of isolation when pop groups such as Queen broke an international cultural embargo to perform there.
By flouting the ban, Sun City became a focus of an international anti-apartheid campaign and was immortalised when Steven Van Zandt wrote a song with the line "I ain't gonna play Sun City".
"When people write about my father they can't divorce him from Sun City but I'm proud of what he did there," says Mr Kerzner. "The political system in South Africa at the time was horrendous but Sun City was the only place in the country where blacks and whites could get along. I don't feel a desire to distance myself from that."
Neither, it seems, does Nelson Mandela, who has endorsed the Kerzners and thanked them for boosting "the South Africa economy with their entrepreneurship". Mr Kerzner admits, though, that the development of the company has not always been smooth.
It had an "unhappy" experience in Atlantic City when it attempted to renovate a casino and hotel before selling it and getting out of the market. It dabbled in Las Vegas when it agreed a deal to buy the Desert Inn, a casino in a prime spot on the city's Strip. However, Mr Kerzner decided not to proceed. "To get into that market is very competitive. We weren't sure we could go into it and distinguish ourselves from what others were doing."
Efforts were instead concentrated on the Bahamas and new markets which, in the last two years, have included the UK. If its gambling laws are deregulated as planned, says Mr Kerzner, Britain could end up contributing as much as 20 per cent of the group's earnings.
Opponents of the government's gambling bill say the new legislation could provoke a rise in the number of problem gamblers. Mr Kerzner responds that gambling, as part of a wider leisure and entertainment project, can help regenerate areas. "We don't pay lip-service to this issue," he says. At its proposed Manchester development the group has agreed to build a training centre for students of the leisure industry at Manchester's College of Arts and Technology.
With its expansion into Asia, new facilities in the Bahamas, the Atlantis-Dubai (see box), and the small matter the Millennium Dome project, there is plenty to keep Mr Kerzner occupied.
"We have never tried to tackle as many projects at the same time before," he says. "It's a massive challenge and I'm sure it won't be without its sleepless nights." See Editorial Comment
LESSONS FROM THE ATLANTIS DUBAI RESORT: THE LARGEST LINK IN A LUXURY CHAIN
The Millennium Dome project is Kerzner's most high-profile development but it is by no means the most costly or, indeed, the most complicated. At a cost of Dollars 1.1bn, (Pounds 597.6m) Atlantis Dubai is Kerzner's largest project. With a 2,000-room hotel, the development will be similar to the group's Bahamas resort - but with no casino, in deference to Dubai's antipathy to gambling. It will form part of the Palm, a luxury resort development that has attracted Dollars 5bn of investment.
Atlantis Dubai is a good example of how Kerzner manages the development of its properties. Like many of Kerzner's One & Only hotel developments, financing was complex and relied partly on investment from local partners. Nakheel, the company leading the Palm development, recently took a 13 per cent stake in Kerzner International for about Dollars 225m. "We have demonstrated that when we go into regions we establish long-term partnerships," says Mr Kerzner.
Nakheel, he says, "has Dollars 15bn of real estate and has become a big investor in our company." New shares were issued to Nakheel and Caledonian Investments, a long-term investor, also sold shares. The group uses the same model of attracting investment from developers and property owners for its One & Only chain. "We have also been paying down debt so that we could get our balance sheet into great shape. So in the last two years we have been laying the foundations for our next phase of growth," says Mr Kerzner.
He says he is unconcerned about the lack of a gaming element at Atlantis-Dubai. "Less than 25 per cent of our revenues in the Bahamas come from gaming. We've built a real tourism business there." The resort, which is due for completion in 2007, will rely instead on its water rides, hotel and aquarium to attract thrill-seekers and families. Mr Kerzner becomes highly animated when talking about the water rides at Atlantis. "One of the rides is a 63-degree free-fall into pitch blackness. When you're part of the experience like that it changes every time you do it."
By MATTHEW GARRAHAN
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