Harrah's Bets on the Bahamas

The casino behemoth is partnering with Starwood Hotels to develop a billion-dollar resort on Nassau's Cable Beach -- watch out, Atlantis!

By Christopher Palmeri

For years, Las Vegas has operated under the "if you build it, they will come" philosophy of resort development. Giant casino hotels have sprouted up like mushrooms, most of them bringing hordes of new customers to Sin City. Now the Bahamas is about to get a taste of that action. But only a taste.

Casino giant Harrah's Entertainment (HET ) and hotel operator Starwood Hotels & Resorts (HOT ) are set to announce their participation in a billion-dollar development on Nassau's Cable Beach on Nov. 7. The resort, called Baha Mar, was created by Sarkis Izmirlian, a resident of the exclusive Lyford Cay enclave in the Bahamas.


  Izmirlian, whose father made a fortune in the international peanut-farming business, acquired the Wyndham Nassau Resort and Crystal Palace Casino from Las Vegas businessman Phillip Ruffin this past May. Ruffin had purchased the properties 11 years ago from Carnival Cruise Lines (CCL ). Izmirlian also bought a Radisson hotel on Cable Beach from the Bahamian government. In September, he announced plans to have golf legend Jack Nicklaus design a course on the property.

The Bahamian government -- which gives hotel developers tax breaks to import construction supplies -- is welcoming the new resort because of the jobs and tourism dollars it will bring. The Cable Beach hotels had grown a little worn due to underinvestment.

"I felt we were better off putting money in Vegas," says Ruffin, who plans to develop a resort on the 41-acre site of his New Frontier Casino on the Las Vegas Strip.


  The Baha Mar development comes at a time when the leisure industry -- and casinos in particular -- is doing quite well. Harrah's, the world's largest casino operator, reported results on Nov. 3 that beat analysts' expectations. This was in spite of the fact that three of the company's casinos were knocked out of commission by Hurricane Katrina and one fell victim to Hurricane Rita. Earnings at Harrah's rose 42%, to $169 million, in the quarter; the results were greatly helped by the June acquisition of former rival Caesars Entertainment.

Baha Mar will compete most directly with Kerzner International's (KZL ) Atlantis resort on nearby Paradise Island. Kerzner created Atlantis after acquiring the old Resorts International from Merv Griffin in 1993. Since then, the South African father-and-son duo of Sol and Butch Kerzner has been adding new amenities and attractions, such as an aquarium and marina, which will bring their investment in the property to $2 billion by early 2007.

Butch Kerzner last year told a Bahamian reporter that he'd prefer a more midmarket development at Cable Beach, calling the addition of another high-end resort a "bloodbath." He says the Baha Mar property should complement Atlantis, which enjoys average room rates above $290 a night. Harrah's, he notes, has a history of targeting middle-American gamblers, not international high rollers.


  Kerzner, meanwhile, is in the process of expanding the Atlantis water park, and he'll need tourists who aren't his hotel guests to help fill it up. As a destination, Kerzner notes, the Bahamas has fewer than 8,000 hotel rooms, compared with 111,000 in Orlando and 131,000 in Las Vegas. "The more things that happen in the island, the better," he says.

There's one sure way that the Bahamas won't be like Vegas: Kerzner and Izmirlian have a guarantee from the government that theirs will be the only two casinos allowed in the country for 20 years. Not bad for a competitive head start.

Palmeri is a correspondent in BusinessWeek's Los Angeles bureau

Edited by Beth Belton

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