Kerzner Interactive Calls It Quits

The fate of online gaming site Casino Atlantis is in question today after Kerzner International announced it is going to "discontinue" Kerzner Interactive's gaming operations.

Kerzner Interactive's CEO, Tobin Prior, said the decision was made by the board of directors of Kerzner International. The decision was made public as part of Kerzner's fourth-quarter results, which were released today. As stated in the fourth-quarter report, Kerzner Interactive will no longer operate online gaming.

Life of Kerzner Interactive

April 2000 - Sun International's managing director Peter Bacon calls on the government of South Africa to legalize online gambling.
May 2000 - Sun signs a deal that will have gaming software provider Online Gaming Systems Ltd. developing a free-play online casino for the soon-to-be launched Atlantis Resort Web site.
February 2001 - Sun officially enters the I-gaming space by signing a software deal with gaming technology group Boss Media.
September 2001 - The Isle of Man awards Sun an online casino license.
December 2001 - CasinoAtlantis.com goes live.
February 2002 - Sun International and Station Casinos, Inc. announce that Station will purchase a 50 percent interest in SunOnline Ltd.
May 2002 - Sun International changes its name to Kerzer International.
August 2002 - The Kerzner (Sun)/Sation deal falls through.
January 2003 - Kerzner International announces plans to fold Kerzner Interactive.

Prior said Internet gambling was not profitable enough for Kerzner Interactive to continue.

"Our board decided that the prospects for the business were more medium- to long-term than short term," he said, "and that basically we should divest of our interests or find another way of approaching it or to cease to operate the way we're operating right now."

No decision has been reached yet as to what will happen to Kerzner Interactive or to the Casino Atlantis Web site, which is licensed and based in the Isle of Man. Prior said one reason for the decision is that Casino Atlantis could not compete with gaming sites with less stringent rules about what jurisdictions from which they accept players. Casino Atlantis does not accept players from several jurisdictions--including the United States--in which Internet gambling is not legal.

"The jurisdictions are getting tougher and more highly regulated, and we're not playing on level playing fields," Prior said. "We're competing with people who don't operate the way we operate. The economic prospects for the business are not particularly encouraging."

Kerzner Interactive also adheres to anti-money laundering codes that are stricter than what some other gaming sites must comply with, Prior said.

While Kerzner International's fourth-quarter report states that Kerzner Interactive's operations will end during the first quarter of this year, Prior said no firm decision has been made yet as to what will happen to the company. One option is to sell it.

"For people who want to operate in (the Isle of Man), and who need a certified, tested, approved product, then obviously there's some value for them," Prior said. "That would be our preferred option."

Gaming analyst Andrew Zarnett said that as the Internet gaming industry enters consolidation mode, it is not shocking that some companies will close their doors.

"Due to the difficult financial state and the high expense to start up an operation in the online gambling business, you'll have fewer new entrants, and some people will leave," said Zarnett, who is a managing director at Deutsche Banc Alex Brown Inc.

For the fourth quarter of 2002, Kerzner International is reporting recurring net income of $4.7 million, up from net loss of $5.3 million during the fourth quarter last year.

Kerzner also said today that it has renegotiated its agreement with Station Casinos. Station and Kerzner Interactive had previously been partners in the Casino Atlantis venture, and in June 2002, Station bowed out of the project with an option to purchase a 50 percent interest in Kerzner Interactive. As of today's announcement, Station and Kerzner have dissolved this arrangement, meaning Station will leave the relationship empty handed.