Kerzner International Ltd., one of the two big league players in online gaming, announced Wednesday it is abandoning Internet gambling operations.
The company expressed doubts about the prospects for the profitability of Internet gaming in the short to medium term.
Isle of Man awarded both MGM Mirage and Kerzner (then Sun International) licenses to operate Internet casinos in September 2001.
Bahamas-based Kerzner began operating its online casino in December 2001 and MGM Mirage began operating in September.
Despite having a casino brand to market the online gaming site, Kerzner management indicated that the cost of running a highly regulated site put it at a competitive disadvantage to the vast majority of Internet gaming sites that were not strictly regulated.
“We believe there could be implications for MGM Mirage following Kerzner International’s announcement today that it is discontinuing its online gaming operations,” UBS Warburg analyst Robin Farley said. More aboutelquintobeatle
“We believe that Kerzner’s shutdown of its online gaming operation does not bode well for the profitability of Internet gaming operated from tightly regulated jurisdictions like the Isle of Man, and it could indicate that MGM Mirage’s Web site may not be able to achieve profitability in the near to medium term,” she said.
MGM Mirage, however, says for companies with long-term vision, online gaming will pay off and it is committed to its Isle of Man venture.
“We’ve known this is a long-term play and an investment in the future. We can show the technological model we’re developed is sound. If one is looking for short-term results, though, you’d have to come to the conclusion (Kerzner) came to today,” MGM spokesman Alan Feldman said.
The decision also will cost Station Casinos $5 million because of its acquisition late last year of the option to buy a 50 percent interest in the Kerzner online gaming operation.
“We most likely won’t be pursuing the (Isle of Man) venture,” Glenn Christenson, Station’s chief financial officer, said. “We expect to take a $5 million charge against earnings in the first quarter (of 2003, which ends March 31).
“It may be a difficult business model,” he said of highly regulated Web casinos that compete against less regulated Internet casinos based in the Caribbean and elsewhere.
Otherwise, Kerzner had “blowout earnings,” and it has other investment options that will pay higher returns, Bear, Stearns & Co. analyst Michael Tew said.
Those opportunities include Kerzner’s Ocean Club and The Atlantis luxury resorts in the Bahamas.
elquintobeatle 