Circus Circus Enterprises Case Studies Essay

, Research Paper

Executive Summary:

Circus Circus Enterprises is a leader and will continue to be in the gaming industry. In recent years, they have seen a decline in profit and revenue; management tends to blame the decrease on continuing disruptions from remodeling, expansion, and increased competition. Consequently, Circus has reported decreases in its net income for 1997 and 1998 and management believes this trend will continue as competition heightens. Currently the company is involved in several joint ventures, its brand of casino entertainment has traditionally catered to the low rollers and family vacationers through its theme park. Circus should continue to expand its existing operations into new market segments. This shift will allow them to attract the up scale gambler.

Overview

Circus Circus Enterprises, Inc founded in 1974 is in the business of entertainment, with its core strength in casino gambling. The company.s asset base, operating cash flow, profit margin, multiple markets and customers, rank it as one of the gaming industry leaders. Partners William G. Bennett an aggressive cost cutter and William N. Pennington purchased Circus Circus in 1974 as a small and unprofitable casino. It went public in 1983, from 1993 to 1997; the average return on capital invested was 16.5%.

Circus Circus operates several properties in Las Vegas, Reno, Laughlin, and one in Mississippi, as well as 50% ownership in three other casinos and a theme park. On January 31,1998 Circus reported net income of 89.9 million and revenues of 1.35 billion, this is a down from 100 million on 1.3 billion in 1997. Management sees this decline in revenue due to the rapid and extensive expansion and the increased competition that Circus is facing. Well established in the casino gaming industry the corporation has its focus in the entertainment business and has particularly a popular theme resort concept. Circus projects are designed to attract middle class mainstream tourists and family vacationers. Each circus property and location has a specific theme and ambiance as the company defines its entertainment as .pure play and fun..

The Las Vegas Strip is the Home of numerous Circus Circus property namely Circus Circus Las Vegas, Luxor, Excalibur and the newly designed Mandalay Bay. Circus Las Vegas is the world of the big top, where live circus acts are performed free every thirty minutes. The Luxor hotel and casino is styled with an Egyptian theme where visitors are reported at 10,000 per season and has 2245 slot and poker games. Located next to the Luxor is Excalibur; it is one of the first sights seen by many travelers upon entering the strip. Excalibur, a giant medieval like castle is an 110,000 square feet casino and 4008 rooms. Their latest project Mandalay Bay built in 1999 contains 3700 rooms and an 11-acre aquatic environment. Circus Circus has a number of joint ventures, including the Monte Carlo a hotel-casino on 90,000 square feet built and operated together with Mirage Resorts. The Grand Victoria in Elgin Illinois, a floating casino with land based entertainment complex, a partnership with Hyatt Development Company. Silver Legacy is in a downtown location on 85,000 square feet operated jointly with Eldorado Limited.

Circus Circus has achieved success through an aggressive growth strategy and a corporate structure designed to enhance that growth. Circus pursues a competitive strategy of product differentiation through serving middle-income customers attracting family vacationers.

Problems

Circus Circus faces four problems within the gaming industry one such is it.s financial performance. Circus casinos have the lowest revenue relative to its competitors. The cost of new development, namely Mandalay Bay, costs the company $950 million excluding land. The large-scale projects and renovations taken on by Circus have caused depletion in their short-term cash; therefore, they.re anticipated long-term cash flow is uncertain.

Another disadvantage to Circus Circus is that Las Vegas focuses on catering to higher-end rollers, while the company has targeted family vacationers. Circus has geared all of their casinos based on the family concept and has remodeled their casinos to fit its customer base. This has in turn made the transition from family to entertainment a hard and costly venture. However, the rapid change and turnover within the industry has caused Circus to rethink their current market segment.

Over the past several years, mergers and acquisitions have reshaped the gaming industry. Circus is facing increased competition from traditional competitors who are imitating some of their business strategies. The latest mergers between ITT Corporation and Starwood Lodging Trust, has brought great competition to Circus. The result of this consolidation has resulted in one the largest corporations in the industry competing in similar businesses with Circus Circus. ITT owns Caesars, Sheraton, Four Points Hotel and other hotels internationally.

Growth in the gambling industry has led to geographical expansion in recent years; as a result Circus has been faced with increased competition. Legislative changes have approved gambling in other states and cities, for example, offshore cruises, lotteries and betting. The growth of the Native American casino and state run lotteries continues to increase in such