Manchester awarded a provisional contract back in 2004 to Kerzner, along with Ask and Artisan, two small local development companies, to create a us$ 510 million casino and leisure complex in the east of the city.
Yesterday, Tom Russell, CEO of New East Manchester - the regeneration quango in charge of redeveloping the area - said: "Kerzner's bid had a quality design, which jumped out at us. They also made substantial commitments to local employment."
Under the 2005 Gambling Act the winning council has to hold a fresh competitive auction to decide which companies will develop and operate the casino - a stipulation that Russell acknowledged. "It will go out to competitive tender and we will accept casino proposals from other developers."
However, senior casino executives said they were unlikely to bid against Kerzner. "Manchester had a complete tie-up with Kerzner. I just don't see the point of bidding against them again," said the head of one leading American gambling firm. On the other hand, Ladbrokes, which has only just re-entered the casino market, said it was "not ruling itself out by any means. The government has been very clear that it has to be an open auction". A source close to Gala Coral insisted it too stood a chance. "Watch this space," he said.
However, Gala Coral, along with Rank, stands to be the biggest loser from yesterday's decision. Alongside Manchester, 16 locations for large and small new-generation casinos were announced. Eleven of these venues are in areas where there are existing casinos.
Rank already has a casino in the centre of Manchester, while Gala has venues in both Hull and Leeds - two of the locations chosen for new large casinos. Gala Coral is considering taking legal action because the new casinos will be able to offer substantially more appealing games and jackpots to punters.
Viscountess Cobham, CEO of the British Casino Association, said: "The existing operators are a bit like corner shops trying to compete with a new large Tesco in town."
She warned that the existing 138 casinos, opened under the restrictive 1968 Gaming Act, could be hit hard. "However successful these operators are at winning new licences they have 40 years of intensive investment that could be severely damaged."
Ian Burke, Rank's CEO, said he would vigorously lobby the government to ensure the existing casinos enjoyed the same status as the new ones.
Kerzner International was listed on the New York Stock exchange until last year when it was taken private in a us$ 3.8 billion deal led by Kerzner, backed by Goldman Sachs and a Dubai government investment vehicle.
Ask is a small Manchester development company that was set up by former Amec director Ken Knott and has pop star Mick Hucknall as a 17pc shareholder. Last year the management sold a 25pc stake to Morgan Stanley for about us$ 29 million.