As to why the Flamingo didn't buy the strip of land that was Barbary Coast, and prior to that, the motel you show ...

Just guessing here, but didn't that corner have a bunch of high voltage electric lines strung across LV Blvd, going east & west, right at the Flamingo Blvd intersection? Across the street, on the Caesars Palace side, there may have been a transformer "farm" of power equipment too?

Back then, those obstructions would have contributed to an impaired real estate value for the now-Vanderpump lot. At some point, all the electrical must have been buried underground (?) as it's not there now.