The Kansas Lottery said it was notified Monday afternoon that Sumner Gaming Joint Venture, a partnership of Harrah's and a group of Kansas investors, decided not to pursue a license to operate a $535 million facility in the south-central town of Mulvane.

"Current economic conditions and the unprecedented disruption in world financial markets have made it impossible to proceed with the project as planned," Harrah's said in a statement.

But the company also said that "both parties will continue to consider available options for the proposed Mulvane casino" -- a statement interpreted by some as leaving open the possibility of reapplying if the financial climate improves.

"We are, of course, disappointed that Harrah's has withdrawn its plans for a casino in Sumner County for financial reasons," said Ed Van Petten, Lottery executive director. "They tell us it is not feasible for them to move forward with a project at this time and we have to respect their decision."

The two remaining applicants are a partnership of Kansas Speedway and the Baltimore-based Cordish Co. to operate a Wyandotte County casino, and Butler National Service Corp. for a casino in Ford County. Both said they still plan to go forward with their plans.

Final approval by the Kansas Racing and Gaming Commission for those two applicants is expected next month following background checks. The commission will go through the formality of rejecting Harrah's so that the Lottery can start accepting applications.

"With this notification, we will cease any work we are doing on Harrah's background," said Stephen Martino, the commission's executive director.

By withdrawing before final approval, the Lottery will return the $25 million privilege fee that Harrah's had paid when it was selected for the Sumner County project.

The Lottery, which owns the gambling and contracts with the companies to build and operate the casinos, will reopen Sumner County for bids. The 2007 expanded gambling law allows for four state-owned casinos.

Van Petten said the application period probably will be 90 days. He said those who applied before probably will want to rework their applications.

"Basically, we will start over," he said. "With the economy the way it is, most people will want to restructure the way they are installing things, both timewise and moneywise."

Sumner County officials said they remain optimistic.

"We had some candidates who were definitely interested and we will be looking at people to rebid. I certainly hope we can get a casino," said Janis Hellard, Sumner County Economic Development Commission director.

Likewise, Rep. Vince Wetta, a Wellington Democrat, said, "We are figuring out where we go from here. We are still here and we still are excited."

Harrah's was picked by the Lottery Gaming Facility Review Board over Penn National Gaming Inc. and Marvel Gaming, which had both proposed to build Sumner County casinos in Wellington.

After Harrah's announcement, neither Penn nor Marvel ruled out the possibility of reapplying, but both said much depends on how the state structures the application process.

"It may not pencil out to be a good investment with the current circumstances but we like Kansas and we're not going to rule anything out," said Roger Wagner, Marvel president.

Penn spokesman Eric Schippers said, "It's premature to say what our interests might be until we understand where the state will take the process."

Penn was the only bidder for the Cherokee County casino, but walked away in September after receiving the contract. The company said it couldn't compete with a new Oklahoma tribal casino located so close to the state line that its parking lot is in Cherokee County.

The Lottery set a Jan. 21 deadline for new applications for the Southeast Zone, which also includes Crawford County.