Casino-resort leader still has plans for Hawai'i

By Dan Nakaso
Advertiser Staff Writer

Howard "Butch" Kerzner flew home to the Bahamas on Friday to regroup and figure out how his ambitious plans to build Hawai'i's first gambling resort got so far off track.

"Butch" and Sol Kerzner waited in the Bahamas for 10 years before finally getting the go-ahead to build "Atlantis" on Paradise Island. While gambling is featured at the $1.1 billion resort, it's not the centerpiece. Sun International

The company formula focuses on building resorts that are "larger-than-life and blow away the customers," Kerzner said, and it has succeeded in places such as the Bahamas and Sun City, South Africa.

But in the past two weeks that Kerzner has lobbied lawmakers in Hawai'i, four of the five major gubernatorial candidates condemned legalized gambling here.

And Hawai'i's powerful Democratic Sen. Daniel Inouye called gaming "the worst thing we could hope to do for the state."

So Kerzner and other representatives from Sun International left for home deflated and dejected. But there's no doubt they'll return with a new strategy, perhaps in the next few weeks.

"We've got to think things through," Kerzner said before he left. "I think we've done an incredibly poor job communicating what we want to do."

A casino on the side

Kerzner and his father Sol Kerzner, a flamboyant figure in the industry, have learned that persistence is one of the keys to success. They lobbied and waited in the Bahamas for 10 years before winning approval to take over a failing hotel and — in 1994 — began turning it into a money machine resort called "Atlantis" on Paradise Island.

They spent $1.1 billion on a fantasy version of what the lost city of Atlantis might be like, full of water slides, lagoons, grottos, waterfalls and glass-walled viewing spots to see more than 100 species of tropical fish, barracuda and sharks in the world's largest open-air aquarium. It also has a casino.

One of the Kerzners' signature strategies is to downplay their resort's casinos, said Salvatore Di Pietro, gaming equity analyst for Merrill Lynch & Co. At Atlantis, gaming brings in 25 percent of the business, Di Pietro said.

"It's a well-run company," Di Pietro said. "They have a clear strategy of building these must-see attractions where gaming is not the primary focus."

It's that model — a high-end, family-oriented resort with a casino on the side — that has gotten lost in the gambling debate in Hawai'i, Butch Kerzner said.

"The perception is that gambling ... has to be Vegas-style," he said. "I don't think it's seen as the resort idea we have in mind."

Kerzner wants to spend an estimated $800 million to build a Hawai'i version of Atlantis on 30 acres of land next to one of the Ko 'Olina lagoons on the leeward side of O'ahu. He doesn't have a name for it yet or even know what it will look like. But his father will undoubtedly consult cultural experts to give it an only-in-Hawai'i theme, Kerzner said.

In return, the Kerzners propose paying the state $100 million for an exclusive, 20-year gambling license.

The exclusive license is non-negotiable, Butch Kerzner said, to ensure that mom-and-pop slot machine operations or Vegas-style casinos in Waikiki hotels don't dilute the high-end feel that Sun wants for its Ko 'Olina resort.

Mega-resort idea overlooked

"The perception is that gambling ... has to be Vegas-style. I don't think it's seen as the resort idea we have in mind." "Butch" Kerzner President of Sun International Gregory Yamamoto • The Honolulu Advertiser

The company also generates income through the Mohegan Sun Casino Resort it built on Indian reservation land in Connecticut, which is now operated by the highly profitable Mohegan tribe; and through its subsidiaries, which operate resort hotels and casinos in the Indian Ocean and Dubai.

Jon Goldberg-Hiller, an associate professor of political science at the University of Hawai'i, agrees that Sun's idea of a mega-resort has been overlooked in the gambling debate.

But the pro-gambling views are certain to come out if the issue goes before voters in the form of a referendum, which Gov. Ben Cayetano suggested, Goldberg-Hiller said.

"A referendum is a way for politicians to wash their hands and make it look like they're being truly democratic," Goldberg-Hiller said. "The history of the United States instead has shown that particularized interests will spend tons of money to get people to vote their way. Grassroots opposition can't compete. And many legislators are sophisticated enough to know that a referendum is an invitation for the gambling industry to pour money in because there isn't a limit on the resources they can devote to a campaign."

Ira Rohter, one of Goldberg-Hiller's colleagues in UH's political science department, has been advising and supporting anti-gambling forces in Hawai'i and believes the resort-casino concept is just another aspect of a "very slick, classic campaign."

"The more you look at the real information, the more you realize that gambling is an economic black hole for the state," he said. "This is going to have massive bad effects."

' ... vultures are striking'

Rohter estimates that gambling will cost Hawai'i $150 million each year — from bankruptcies to crime to the breakdown of families.

"The vultures are striking," he said. "They are definitely a parasitic industry at a time when Hawai'i's economy is hurting."

In the Bahamas, the massive 2,317-room Atlantis resort and casino has driven much of the area's economic revitalization, said Merrill Lynch's Di Pietro.

Researchers Mark Mutkoski and Joel Simkins wrote in a December report for Deutsche Banc Alex. Brown that, "Given Sun International's successes in the Bahamas, we think there are many parallels that could be drawn between O'ahu and Paradise Island."

In 1979, Sun's founder, chairman and chief executive officer, Sol Kerzner, opened the mammoth Sun City resort in Bophut-hatswana, 100 miles northwest of his hometown of Johannesburg, South Africa.

If the Kerzners get permission for a resort/casino at Ko 'Olina, Butch Kerzner said that he and his father would live in Hawai'i for much of the two years it would take them to build it.

And if that happens, Sol Kerzner, 66, would bring his colorful reputation with him.

He has been called the Sun King after his Sun City resort. A visionary. The Donald Trump of South Africa.

One of his four wives is a former Miss World. His latest is a former model.

Kerzner grew up in a poor suburb of Johannesburg, the son of Orthodox Russian-Jewish immigrants, and worked in the family's small hotel in Durban. At the age of 25, he convinced his parents to help him finance a lease on a second hotel, which became the start of an international empire.

But his Sun City resort became a symbol for apartheid when American rock musicians banded together to record "Sun City." It was an anti-apartheid anthem that helped lead the way to an international boycott of South Africa.

Kerzner's defenders point out that Nelson Mandela, the former leader of the African National Congress and later South Africa's president, later frequented Kerzner's Atlantis resort. Mandela was quoted as calling Kerzner a "decent and honest man."

Bribery allegations in South Africa dogged Kerzner for 10 years and were resurrected during Sun's application for gaming licenses in both New Jersey and Connecticut. Kerzner was never charged with a crime, and both applications were eventually granted.

A 1,500-room dream

Butch Kerzner is the third of Kerzner's five children. Like his father, he grew up in South Africa and both now live in the Bahamas. He's married and has two children, ages 4 and 1.

He and his family had been living on a large yacht. In June, he bought a 6,300-square-foot, five-bedroom, seven-bath townhouse on 91st Avenue in New York, between Park and Madison avenues. The townhouse came with an elevator and multicar garage and an asking price of $8.9 million.

Now Kerzner is focused on an even more expensive dream — a 1,500-room resort at Ko 'Olina, which he believes would generate worldwide buzz for Hawai'i.

It would reignite the idea of turning nearby Kapolei into O'ahu's "second city," he said, and create 6,000 new jobs. But employees — and perhaps their family members — would be barred from gambling at the resort as part of their service agreements, Kerzner said.

Although gambling would not be the centerpiece, Kerzner said the plan cannot go forward without a casino and still be profitable. He believes it would generate somewhere around $270 million to $350 million every year.

The casino also is necessary to draw both Japanese and Mainland tourists who have grown weary of Hawai'i, he said. Just as importantly, he believes it would also attract new visitors from relatively untapped markets in South Korea, China, Taiwan and other parts of Asia, Africa and Europe.

But to get them here, the Kerzners first have to figure out what to do next about public perception in Hawai'i.

"We've got a lot of things to think about," Butch Kerzner said, as he made preparations to fly out of Hawai'i. "We're not quite sure exactly where to go next."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.