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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.

, 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 locations, such as Connecticut and parts of the Mid Western states. Their structure and design are somewhat like Las Vegas but also attracts day travelers by automobile and bus. These new found gambling states pose a potential threat to erode profits from the Las Vegas area, and leave little for Circus Circus to share with its competitors.

Alternatives

To combat the increased problems Circus Circus could expand its existing operations in the gaming industry. Circus needs to focus their attention on the other states within the US and also internationally into other territories, to become a more global player. For example, Harrah?s entertainment has taken this approach by expanding their target markets to Australia, and New Zealand. It operates a total of 774,500 square feet of casino space, which houses a hotel with 8197 rooms, 19,835 slot machines, 934 table games, and a net profit of $99.3 million on $1.619 billion in revenue. An international expansion in an established and a growing gaming market would provide Circus with the edge it needs over its competitors.

Expansion into new market segment would be another alternative for Circus Circus. They have attracted low-income individuals to Las Vegas and have been very successful with this. Moving to other market segments serving the high income and affluent individual to Las Vegas would bring about an increase in profit. High society gamblers, gamble in the million-dollar range and have been favorites of other Circus rivals such as, Caesar?s Palace and the Mirage Resorts.

Good Scenario

Circus Circus successfully expands by acquiring smaller casinos and building new ones in Nevada and other states. In addition to expanding, the company has realigned their strategy through product differentiation. As result, the company is in a better financial position, increasing market share and eventually profit margins. The expansion will also attract non-traditional Circus Circus customers, such as the ?high rollers?. Circus had been pursuing a focus strategy of targeting family vacationers. This is no more the case Circus now serves both the traditional average income clientele and their high society clients.

Bad Scenario

After expansion to capture market share, and compete in the high-end segment, the company lost its customer base. They have also failed at capturing as much market share as they had originally planned this has given their competitors significant advantages over them. As a result, competitors have acquired not only market share but business segments that Circus had a strong hold on. Circus? reputation is tarnished and is reflected in the number of visitors to its casinos. Ultimately, circus closes some of its casinos due to lack of customer response, and lost its competitive edge.

Recommendation

The Company needs to maintain their current position while further expanding throughout the country as well as internationally. This expansion will be both in its current business line, as well as into new market segments. Many of the Circus traditional and new competitors are expanding by establishing businesses in other states. This will be a major cause of fewer visitors to Nevada. Circus will only be able to combat this by having its own casinos and gambling resorts at the locations where potential competitors are present or they can form strategic alliances and joint ventures. One such venture could be with Harrah?s Entertainment who has a large market presence in Australia and New Zealand where their market strategy appeals to the high-end customers. This alliance would potentially create the opportunity for Circus to refocus their company?s operations, with positive impact on their revenues and the newly found up-scale customer base.

Circus should address its diversification, in terms of manufacturing hotel entertainment and hotel gaming equipment. This will enable them to survive and reap profits in times of recession where there is a slow down and less spending on gambling, and higher probabilities that their margins could suffer.

Implementation

In order for Circus Circus to compete within the industry implementation of different market strategies would be their primary concern. One such implementation would be the research of potential markets both internationally and within the United States.

The company will form specialized task force teams. This could be through the use of either internal sources (the firm?s intellectual capital), or professional consultants. These task teams will focus on researching new strategies the company plans to take, through market surveys, questionnaires, and industry reports. This will enable management to adhere to the needs of its customers.

The company will negotiate with strategic alliance candidates such as Harrah?s, and MGM Grand Hotel and Casino Resorts. They will also work on joint ventures, and potential mergers with other Gaming companies.

Circus Circus will also concentrate on disseminating these new strategies, to all levels of the firm. Hence all levels of the firm from the corporate to functional will be aligned.

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