This Las Vegas Casino Has The Worst Reputation (Hint: Its Not Caesars)

By Markets Fool.com

In Las Vegas, your business is only as good as your reputation. If customers believe they're not getting a good value, service isn't good, or the rooms aren't up to par, there are dozens of other options to stay at all along the Las Vegas Strip.

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So it shouldn't be a surprise that reputation and profits go hand in hand in Las Vegas.

An image of some of the older, and less profitable, resorts on the Las Vegas Strip. Image is in the public domain.

The worst resort in town
Given the fact that Caesars Entertainment is partially (if not completely) bankrupt, you may think that one of its resorts has the worst reputation in Las Vegas. Based on customer reviews, it's actually Caesars' main rival, MGM Resorts , that owns many of the worst resorts in Las Vegas.

Below you can see that among major Las Vegas Strip resorts, MGM's Circus Circus on the north end of the Las Vegas Strip has easily the worst rating on Yelp and falls just ahead of Flamingo Las Vegas for worst Trip Advisor rating. The figures below are the average rating from Yelp and Trip Advisor.

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Resort

Average Yelp Rating

Average Trip Advisor Rating

Flamingo

2.7

3.4

Excalibur

2.7

3.8

Luxor

2.7

3.7

Circus Circus

2.4

3.6

Source: Yelp and Trip Advisor.

The fact that Circus Circus is among the worse resorts shouldn't be a huge shock. It has arguably the worse location of any resort and a child-friendly theme that seems out of place in Las Vegas. Combine that with the fact that it's been largely neglected by MGM's management and you have a recipe for a deteriorating property.

Wynn Las Vegas and Palazzo are two of the most profitable in Las Vegas. Image owned by The Motley Fool.

In Las Vegas, you get what you pay for
It should come as no surprise that these hotels are also some of the cheapest to stay at in Las Vegas. In Las Vegas, you get what you pay for, because hotels have figured out how to maximize revenue by adjusting rates literally every day of the week.

It should also be no surprise that hotels with bad reputations are some of the least profitable in Las Vegas, at least as measured by EBITDA (a proxy for cash flow from a casino).

In 2014, Circus Circus generated just $23.6 million in EBITDA, the worst among MGM's resorts. Luxor and Excalibur, also owned by MGM, generated slightly better EBITDA of $70.1 million and $68.2 million respectively.

This pales in comparison to more highly thought of resorts. Wynn Resorts has a Yelp rating of 4.2 and generated $515.2 million in EBITDA last year. Las Vegas Sands' Venetian resorts has a 4.0 rating and generated $314.0 million in EBITDA last year.

Clearly, the better your reputation the more you can charge, and the more profit you'll make.

Why it's not worth fixing up old resorts
The problem for a company like MGM Resorts is that a resort like the Circus Circus resort -- or even an Excalibur or Luxor -- simply isn't worth fixing up at this point. It would cost billions of dollars to entirely revamp them, so they'll keep them up just enough to squeeze some money out of them until imploding them for a new resort.

That's the cycle Las Vegas has gone through for decades now: Wear a building out until it's worthless, and then blow it up for the next great mega resort.

Consider this before you buy
Whether you're looking at booking a hotel room or buying a stock, think about a resort's reputation before jumping in. Companies with the best reputation charge the most and give consumers the most satisfaction, and by extension make the most profit typically. Companies with a worse reputation will offer a much better price, but they are unlikely to make as much money for investors.

The article This Las Vegas Casino Has The Worst Reputation (Hint: Its Not Caesars) originally appeared on Fool.com.

Travis Hoium owns shares of Wynn Resorts, Limited. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.