Monday, April 5, 2010 | 2 a.m.
Map of Circus Circus
2880 Las Vegas Blvd South, Las Vegas
NO FUN AT CIRCUS CIRCUS
Unlike lower-rent properties on the south end of the Strip, which have higher-end neighbors from which to draw walk-up tourists, Circus Circus is more isolated after resorts closed around it. The property was MGM Mirage’s biggest Strip money-loser.
The mothballed and postponed construction projects on the Strip are making the recession even rougher on one end of Las Vegas Boulevard.
Standing between that northern section and the rest of the Strip is mostly vacant land bought by developers who tore down older hotels during the economic boom and aimed to build high-end resorts. This no man’s land contains fenced-off parcels with resorts stalled by the cratering of the economy — the exposed steel skeleton of the partially built Echelon and the empty and unfinished Fontainebleau Las Vegas. It’s an uninspiring view for tourists walking the Strip — a foreboding one, even.
Circus Circus used to be fed by pedestrians coming up its way from the New Frontier, the Stardust and Westward Ho, but those resorts are gone. The detrimental effect has been considerable, MGM Mirage spokeswoman Yvette Monet says.
The next-door neighbors that Circus Circus has left are having more than their share of economic troubles, too. Financial figures aren’t available for the Sahara because it is privately held, but the property has been closing some of its rooms now and then to save operating costs. The Riviera reported a $5.6 million loss in the fourth quarter and is negotiating with creditors to restructure the company’s debt, which may include seeking bankruptcy protection.
For that same quarter, Circus Circus was MGM Mirage’s biggest money-loser on the Strip.
After expenses, the resort posted a loss of $3.4 million in operating income. It earned only $4 million in operating income for all of 2009, down from $33.7 million in 2008.
Circus Circus is a lower-rent property, and analysts and executives say budget properties are suffering as customers upgrade to well-appointed resorts that are offering deep discounts. If tourists can pay just a little bit more to stay at a more luxurious, newer hotel, they do it.
The industry has a name for this trend: price compression.
MGM’s Excalibur also is a budget property and, like Circus Circus, tends to attract cost-conscious adults with children. Both hotels have about 4,000 rooms.
But when it comes to earnings and losses, this is a tale of two cities.
Excalibur is more centrally located on the Strip, with more walk-by traffic and proximity to higher-end hotels, and it posted operating income of $8.4 million in the fourth quarter. That’s within striking distance of the $8.9 million earned by neighboring Mandalay Bay, a much larger and more luxurious property that includes The Hotel, an upscale hotel expansion.
For 2009, Excalibur posted $48 million in operating income. That’s down from $84 million the prior year but was better than Monte Carlo, New York-New York and Luxor, which are more expensive properties with higher-end amenities.
Circus Circus and Excalibur earned vastly different amounts of a key profit indicator called EBITDA — earnings before interest, taxes, depreciation and amortization. By this measure, Excalibur earned $72.1 million against Circus Circus’ $27.1 million. Excalibur’s EBITDA fell 35 percent, which is more within the range suffered by other major casinos in the recession. Circus Circus’ EBITDA, however, fell by 52 percent.
“Excalibur can make good money because it costs less to run” than a high-end resort, said Frank Martin, a gaming analyst who has taken notice of the properties’ differing fortunes.
But Circus Circus costs less to run than a high-end resort too, despite boasting the only amusement park on the Strip.
That’s not enough nowadays, with so many budget offerings available. MGM Mirage knows this, which is why the company has been trying to cross-market its many nongambling attractions.
Circus Circus recently began offering a family package including $260 worth of discounts, with 2-for-1 tickets to family-oriented attractions at other MGM Mirage-owned resorts, such as Mandalay Bay’s Shark Reef aquarium and “Lion King” production, the roller coaster at New York-New York and Monte Carlo magician Lance Burton.
Whether that will be enough to help Circus Circus withstand the recession and overcome the gap remains to be seen.