The Castle and the Circus

An investment analysis memorandum [please comment]


Although most of the attention on the strip is focused on the high end glamor casinos, the year end report for MGM MIRAGE for the first time since acquiring Mandalay Bay Group provided detailed information on the individual strip properties.

It is interesting to compare MGM's two least expensive casinos on the strip, the Excalibur and Circus Circus. They are two of the dozen largest hotels in the worlds in terms of rooms (4008 rooms / 3774 rooms). The expenses incurred by the resorts are similar ($204.6 million / $196.4 million). But the average room rate is $17 better for Excalibur ($61 / $44) as is occupancy (87.4% / 83.2%).

Excalibur guests also spend additional money in the hotel. The additional amount spent is equivalent to an extra $10.48 per room rented at the Excalibur. Prices are a little higher at the Excalibur. The dinner buffet is $6.50 more and breakfast is $4.50 more than Circus Circus prices.

Although these numbers seem fairly modest the end effect is fairly dramatic. Circus Circus has an operating income of only 2% of revenue (the lowest for an MGM strip hotel) while Excalibur has an operating income of 18.1% of revenue (the highest for an MGM strip hotel). Excalibur's operating income for 2009 was a surprising 73% of the combined Mandalay Bay & THE Hotel which was badly hurt by the huge downturn of convention business. Excalibur was also the corporate profit leader of MGM MIRAGE in CY2008 for Vegas strip hotels.

In addition the Nevada Gaming Commission recently changed the Circus Circus fiscal category. In FY2009 it makes less than $72 million in gaming revenue, while in FY2008 it made more then $72 million. Excalibur earned over $72 million for both fiscal years.

This analysis of the two MGM resorts at the height of the recession provides two surprising contrasting results.
It also provides some insight into the decision by MGM executive Alex Yemenidjian to leave his position and take over as CEO of Tropicana Las Vegas, Inc. As an MGM executive he has been looking at these numbers for years. His new corporation is planning a $125 million renovation of Tropicana Las Vegas, across the street from Excalibur which includes the redesign of every hotel room, the casino and the pool area, several new restaurants, bars, a new poker room and nightclub.

Operating income at Circus Circus was only $2.91 per room per day in CY2009. Since that is only an average for the year, the resort may have already slipped into a loss status by the end of the year. The position of every north strip hotel is getting precarious. The Stratosphere is reporting large drops in revenue (almost 20% off peak in early 2008). Sahara has closed hotel towers. Riviera casino has threatened bankruptcy. These razor thin margins are continually threatened by the month after month drop in gaming revenue. There was a drop of almost a $1 in the average slot machine and $20 per blackjack table for the strip in just the month of January 2010.

There was pretty much a continuous walk available from the Stratoshphere down to Mandalay Bay. With the Stardust gone, you lose the continuity of the strip that you used to have. I think Circus Circus an the North Strip are suffering as a result of that loss of continuity. After the Encore, you have a run down mall on the east side of LV Blvd and an empty construction site on the West Side before you get to the Circus and Riviera.

And with hotel prices dropping along the strip, you can do a flight-hotel package at the Mandalay Bay or another strip property for about $100 more than Circus Circus. I mean, right now, I can book a three night (weekend) at the Mandalay Bay resort over easter weekend for $250 above Airfare where as the same trip at Circus Circus is $150 over airfare.

The Tropicana certainly is tired and old. The MGM executive can make alot more of an impact at a singular property than he probably could at the megacorporation. Certainly a renovation / redesign at a critical corner of the strip will affect the Excalibur's revenue.

For me, the Excalibur's success is a function of location and its price structure in the realm of all strip properties.

Quote: boymimbo

There was pretty much a continuous walk available from the Stratoshphere down to Mandalay Bay. With the Stardust gone, you lose the continuity of the strip that you used to have.

For me, the Excalibur's success is a function of location and its price structure in the realm of all strip properties.

Thanks for commenting on this post. I thought this would raise more interest. The fact that Excalibur made a higher operating income (in $, not in %) than NY-NY, Luxor, Monte Carlo and Circus Circus is pretty interesting. Also the fact that the operating income was 73% of combined Mandalay Bay & THE Hotel is remarkable, but Mandalay Bay's expenses are three times the Excalibur. When the convention business mostly dried up you just don't have the revenue to make the huge profit.

Bellagio continues to be the money-maker, followed by MGM GRAND, but Mirage is performing extremely well for the 20th anniversary. They re-did the volcano, and the property continues to be a sentimental favorite. Mirage was ahead of Mandalay Bay for 2009. It just goes to show that quality can last a long time.

Monte Carlo should improve remarkably since it is so close to ARIA, but is a fraction of the price.

The numbers are so terrible from Circus Circus (both Las Vegas and Reno) that they might just be better off turning them into empty lots awaiting a new era in development. Knocking down Circus circus would probably just make it even worse for Sahara, and Riviera.

Perhaps MGM MIRAGE will eventually purchase the Tropicana and keep a lock on the entire southern strip.

I think one of the problems for Circus Circus, is that even in 2007 it looked tired, old, and dirty. It was also crowded. I would hate to think what condition the place is in now without a revamp. I wouldnt go so far as to knock it down, as it is an Iconic part of Vegas, but some money does need to be spent. Location is poor but if the stalled construction restarts when the economy pics up at that end of the strip, and the strip becomes more of a continuous walk again, it could start doing better.

Although on a plus point whilst shopping in the Circus Circus gift shop there was the friendliest most helpful shop assistant I have ever met, and most other staff were equally pleasant.

Quote: Croupier

I think one of the problems for Circus Circus, is that even in 2007 it looked tired, old, and dirty. It was also crowded. I would hate to think what condition the place is in now without a revamp. I wouldnt go so far as to knock it down, as it is an Iconic part of Vegas, but some money does need to be spent. Location is poor but if the stalled construction restarts when the economy pics up at that end of the strip, and the strip becomes more of a continuous walk again, it could start doing better.

Although on a plus point whilst shopping in the Circus Circus gift shop there was the friendliest most helpful shop assistant I have ever met, and most other staff were equally pleasant.

Maybe someone can confirm or deny this, but I heard a rumor Circus Circus would be imploded then rebuilt as a "new" Circus Circus. The current one is a sentimental favorite, but the layout is typical of the resort built in the period. Get it built, add a tower, add another tower, and before you know it the place is a maze.

I was there on Christmas a few years back and was going to show the co-worker I was with the free circus acts. We couldn't even get up the steps it was so crowded. What would haved made that Christmas would have been to meet the Argentine Trapeze Gal I saw there a few months back. oooh, la-la!

The Trop just came out of bankruptcy last July. I suspect MGM could've picked it up back then but I think with the CitiCentre opening and MGM selling its stake in the Borgata, a $845M 9% bond to raise cash, that the company isn't in the mood to doing any acquisitions any time soon.

With respect to the Circus Circus I was looking at the results from the 2009 statement of operations from MGMs website. Certainly the whole organization is bleeding but Circus Circus is still making money (though losing money in the past quarter).

To explain the traffic switch I think there are a series of explanations and it has to do with the Average Daily Rate (ADR).

The Bellagio remained close to the original occupancy rate because people staying at Mandalay Bay at $214/night in 2008 could now pay $204/night in 2009 at the Bellagio.
Similarly, folks who were fine with paying $64/night in 2008 at the Circus Circus could now afford to pay $61/night to stay at the Excalibur.

IMO, Circus Circus is not bleeding alot of money, yet. The recession is slowly progressing. Occupancy rates and Average Daily rates will creep up again. People will migrate back to Circus Circus. When Fontainebleau opens, the attractiveness to MGM to tear down the property and build will depend on how they are doing at the rest of their properties.

Hotel	2009	2008	2009	2008	2009	2008
	Oper Income	Oper Income	Occup %	Occup %	ADR	ADR
Bellagio	$157,079	$257,415	94.2%	95.0%	$204	$261
MGM Grand	123,378	170,045	94.2	95.5	113	147
Mandalay Bay	65,841	145,005	89.1	90.2	159	214
Mirage	74,756	99,061	93.6	95.8	126	163
Luxor	37,527	84,948	89.8	94.6	80	116
New York New York	45,445	74,276	93.2	95.9	97	128
Excalibur	47,973	83,953	87.4	87.9	61	90
Monte Carlo	16,439	46,788	90.0	93.9	85	109
Circus Circus	4,015	33,745	83.2	84.0	44	64
Riviera (9 months)	891	9,983	76.7	84.4	62	88

I believe that the Sahara is owned privately by SBE and Sam Narzarian.

No, Circus Circus is not bleeding yet, but $4m operating income for the year is pretty much on the edge. Keep in mind that they lost $3.4 million in the last quarter so they are headed into the crapper. The last quarter of 2009 was bad for Mandalay Bay, so much that Excalibur nearly made as much operating income as MB.

And as said earlier, Circus Circus needs some serious upgrading money. Riviera making a little over $891K for the 9 months is pretty $1.55 per room day, which is under $2.91 per room day at Circus Circus. That razor thin margin could vanish in a minute. Slots are dropping a dollar a month.

Sahara is privately owned, but considering Sam Narzarian just bought the place and he is closing buffets and towers, you know it is losing a fortune.

Stratosphere is not broken out individually from the other three properties (Arizona Charlies on Decatur and Boulder) and the Laughlin property, in the American Casino and Entertainment Properties (ACEP). Revenue on all four casinos has dropped by 20%. Whitehall Street Real Estate Funds just paid an astonishing $1.3 billion for the entire company in February of 2008. WSREF did some fancy dealing, because amazingly $600 million in debt vanished in exchange for a 22% share of the company to be held by their parent, Goldman Sachs. I can guarantee that Goldman Sachs did something with the bailout money they received. That's a shocking amount of money to just vanish in exchange for a percentage of a company that is bleeding red ink.


As everyone know, Vegas added 16K rooms in 2008 and 2009 mostly in the South strip. There are still 3K rooms at the Cosmopolitan still coming on-line this year. Rankings released by the Airports Council International in Geneva dropped McCarran from 15th to 17th in passenger traffic among world airports. McCarran's 40.5 million passengers in 2009 was 8.2 percent fewer than in 2008.

I may have sealed the fate of the entire North strip that day when they blew up the Stardust on March 13, 2007, and the New Frontier on November 13, 2007. It may be better off just losing those rooms.

Liz Bentsen of Las Vegas Sun is going to pick up on this story on Monday. Arnold Knightly is also going to pursue the downtown story in Sunday's paper.

I think the Evil Empire should buy Circus Circus, remodel it with some different theming and call it "Circus Maximus."

Tear down the Adevnturedome amusement park and build a scale replica of the Roman Colosseum. There they could stage mock gladiatorial fights, the way they have mock knight fights elsewhere, but also restore some of the features the ruined Colosseum used to boast, like the mock naval battles on a flooded stage. I know it's the middle of a desert, but water-intensive attractions are much on display in Vegas (Bellagio Fountains, the canals at the Venetian, the lake at Wynn, the myriad pools, the Dolphin habitat at mirage, etc).

Of course the Evil Empire can just build its own Circus Maximus closer to Caesars, right behind the Strip.

Quote: Nareed

I think the Evil Empire should buy Circus Circus, remodel it with some different theming and call it "Circus Maximus."

Tear down the Adevnturedome amusement park and build a scale replica of the Roman Colosseum. There they could stage mock gladiatorial fights, the way they have mock knight fights elsewhere, but also restore some of the features the ruined Colosseum used to boast, like the mock naval battles on a flooded stage. I know it's the middle of a desert, but water-intensive attractions are much on display in Vegas (Bellagio Fountains, the canals at the Venetian, the lake at Wynn, the myriad pools, the Dolphin habitat at mirage, etc).

Of course the Evil Empire can just build its own Circus Maximus closer to Caesars, right behind the Strip.

That sounds a little weak. I'd like a full on 21+ nightly gladiator fight.

Quote: ahiromu

That sounds a little weak. I'd like a full on 21+ nightly gladiator fight.

Well, given recent trends, the gladiator fights would feature jell-o, mud or wet t-shirts :P

I sent the memorandum above to Liz, and she used it as the basis for this story in the Las Vegas Sun .