Nov. 8, 2004 - NASSAU, BAHAMAS -- Howard "Butch" Kerzner presides over a sprawling tropical resort centered around a gargantuan castle and a world of make-believe. So it's no surprise he's fond of Walt Disney references.

Atlantis -- the 34-acre compound of waterslides, underground aquariums, shark tanks, a 2,300-room hotel and casino, and lots of underwater mythology -- has become the signature landmark of the Bahamas in the way a certain theme park came to define Orlando.

"Disney has the Magic Kingdom," Kerzner explained. "For us, our iconic architecture is the Royal Towers."

Magic Kingdom parallels may be the envy of most resort developers, but there's a Mickey Mouse metaphor Kerzner International wants absolutely nothing to do with: Euro Disney.

Disney bombed famously when it opened a theme park in Paris that has skirted bankruptcy, symbolizing the perils of trying to export success overseas.

Still, Kerzner plans a similar strategy with Atlantis, hoping to expand the mythical sunken-city theme to the Middle East, Asia and beyond.

A planned Atlantis in Dubai -- to be built on 120 acres on a man-made island shaped like a palm tree -- is at the center of a four-year expansion plan that would nearly double Kerzner's $1.9 billion balance sheet and add roughly $3 billion in new resorts to its portfolio.

"The biggest question from a management standpoint is can we manage this explosive growth?" Butch Kerzner, 41, said during a recent interview in an Atlantis conference room. Plans for a $1 billion expansion of the Bahamian resort -- complete with an 1,500-room Mayan pyramid hotel and a swim-with-the-dolphins park -- hung on easels before him.

"I'm not naive about it," said Kerzner, who is not yet a year into taking over as CEO from his 69-year-old father, Sol, who remains chairman. "It's not easy."

Analysts so far have been bullish on Kerzner International's growth strategy -- particularly its plan to have government partners fund much of the expansion while paying Kerzner to run the new properties.

That approach, along with the lenient tax laws of Kerzner's official home base in the Bahamas, has let the company keep its debt at about 3.5 times its yearly pre-tax earnings -- a more conservative borrowing approach than found at six of the other 10 leading publicly-traded casino companies, according to a Bloomberg analysis.

"The fact is, they're not spending their own money," said Lawrence Klatzkin, a gambling industry analyst who tracks Kerzner for Jeffries & Co. in New York. "There's a lot of bang for the buck."

Still, the expansion plans haven't gone without words of caution, too. "We remain concerned that senior management may be stretched thin as the company continues to pursue aggressive growth opportunities around the world," read an otherwise favorable August Bear Stearns research report on Kerzner.

Industry experts agree that if Kerzner can reproduce its Nassau performance elsewhere, Wall Street will have much to celebrate.

Both Donald Trump and Merv Griffin had tried to turn Paradise Island -- a wide stretch of beach off Nassau -- into a tropical Atlantic City during the 1980s and '90s. But the resort that would become Atlantis filed for bankruptcy under Griffin, and Sol Kerzner's Sun International Hotels bought it from him in 1994 for $125 million.

Kerzner, a South African hotel magnate, had created mammoth resorts in his native country, wrapping a safari theme park, casino and a mega-hotel into a self-contained property with a theme: The Lost City. (It sits in the midst of Sun City, which was the target of the 1985 anti-apartheid rock song I Ain't Gonna Play Sun City. Sol Kerzner has since sold the South African resort.)

Sun International, which became Kerzner International in 2002, spent $1 billion creating Atlantis, which opened in 1998. The 24-story Royal Towers is the centerpiece of the resort, a pink castle with marlin-topped spires. Two main buildings are joined by a 5,000-square-foot luxury room known as the "Bridge Suite."

But along with the Vegas-style architecture, Kerzner wrapped the resort in a fictional story-line. Much of the resort's theme revolves around The Dig: tunnels that run through an 11-million-gallon aquarium, their walls lined with hieroglyphics. As tour groups ogle ghostly manta rays drifting by, straight-faced guides point out where Atlantis residents harvested crystals and stored treasure.

All 50,000 fish are real, but the rest is fake -- from Atlantean language to the faux relics. Just as Walt Disney created a fantasy world in the middle of Central Florida, Kerzner's use of the mythical Atlantis let him position the resort as separate from its island-town surroundings.

"They kind of created Disneyland on the beach," said Gregory Rumpel, senior vice president at Jones Lang LaSalle Hotels. "It certainly hasn't picked up on the Caribbean theme. It's a fantasy theme."

Atlantis brings in roughly 80 percent of Kerzner's gross profits -- $144 million out of $179 million last year, not counting corporate expenses -- far exceeding the dollars coming in from the company's Mohegan Sun casino in Connecticut and its luxury One & Only resort chain.

Kerzner's global expansion plans are aimed at ending the company's reliance on a single property. Kerzner tried to break into Atlantic City and Las Vegas in the late 1990s when it bought into a pair of casinos, but ended up abandoning both deals for an approximately $210 million loss.

"I think they are more comfortable investing dollars where they don't have competition," said Anthony Gerstein, an author of the Bear Stearns report on Kerzner.

In July Kerzner announced a joint venture with the Moroccan government to build a $230 million resort there. The deal bars other casinos from operating in Casablanca and Rabat for 15 years. The United Kingdom has taken preliminary steps to legalize gambling, and Kerzner is poised to open three of the first casinos there.

In Dubai, the sheikdom signed Kerzner to build the main tourist draw on the fronded island the government is creating: a massive waterpark and a 2,000-room resort to be called Atlantis, The Palm. It will also feature the massive acquariums of the Bahamas resort, but there will be no casino there since gambling is illegal.

Kerzner executives see the Dubai project as the first in a string of Atlantis resorts, and the company is currently exploring an Atlantis project in Singapore.

Both the Moroccan and the Dubai deals require little of Kerzner's money. The company plans to invest about $100 million in the $1.1 billion Dubai project, in exchange for 25 percent of revenue and a $20 million development fee, according to the Bear Stearns report.

Kerzner also agreed to sell a 13 percent stake in the company to a government entity in Dubai, an arrangement that has heightened corporate-governance concerns at the company. Kerzner directors, including Sol Kerzner himself, preside over entities that control roughly half of the company shares, according to recent filings.

In the United Kingdom, Kerzner plans a much larger investment than in Dubai -- $1 billion of company funds to build casinos in London, Manchester and Glasgow. Kerzner, Harrah's Entertainment, and other casino operators are ready to build there, pending approval from Parliament.

The $1 billion U.K. outlay roughly matches what Kerzner plans on spending to expand Atlantis in Nassau. The planned growth comes at a time when an investment group hopes to square off against Atlantis for the first time with an upscale casino and luxury resort on nearby Cable Beach.

Kerzner's agreement with the Bahamas, which it recently renewed for 20 years, restricts casino gambling to two places in Nassau: Atlantis and the Wyndham Nassau.

Investors last month signed an option to buy the Wyndham and are negotiating with the government to purchase a nearby hotel, giving them 400 beachfront acres.

The proposed Baha Mar resort would have 2,500 rooms -- slightly more than Atlantis has now -- and well-known casino and hotel companies will be operating it, said developer Robert Heller.

He described the strategy as a tweak of the Atlantis business model: the same kind of mega-resort, but one with a familiar brand and more emphasis on the casino. It would have an island feel rather than offer a fantasy escape.

Gambling accounted for about 26 percent of the $521 million in revenue Atlantis generated last year, which is well below the 50 percent split usually found on the Vegas strip.

Kerzner executives say gambling is such a secondary focus at Atlantis that they designed the casinos with bay windows to let in light, a no-no in Vegas where dawn is supposed to arrive unnoticed.

Surveys of Atlantis guests show only 10 percent of them come there to gamble -- though 90 percent ultimately do -- and Heller sees an opportunity to draw more gamblers to Nassau.

"He's more Orlando-like," Heller said. "We'll be more Vegas-like."

Kerzner executives have raised concerns about the Baha Mar project with government officials, warning Nassau might have trouble supporting a second resort offering hundreds of high-priced rooms.

But they also reject the notion that Baha Mar could offer Atlantis competition, contending the name and the property have combined into something not easily duplicated. "Paradise Island has a magic to it," Butch Kerzner said. "We've created a great brand."

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