There are several problems with your approach.
It’s true that after you place $x_1$, there are $\binom{n-r-1}{r-1}$ ways to place the remaining $r-1$ points, but you’ve not taken into account the fact that there are $n-r$ different plces to put $x_1$.
Each of the points $x_k$ gives rise to the same set of arrangements, so even if the $\binom{n-r-1}{r-1}$ figure were correct for the arrangements after you place $x_1$, you shouldn’t be multiplying by anything.
Even if it were true that for each $x_k$ you get $\binom{n-r-1}{r-1}$ different arrangements, and different points $x_k$ gave you different arrangements, there are $r$ points $x_k$, not $n$, so the total number of different arrangements would be $r\binom{n-r-1}{r-1}$ arrangements, not $n\binom{n-r-1}{r-1}$.
Your approach can be made to work, but you have to be pretty careful. Imagine that the $n$ points are numbered clockwise from $1$ to $n$. Suppose that we list the gaps as $G_1,\ldots,G_{n-r}$ in clockwise order. There are $\binom{n-r}r$ ways to pick $r$ of these $n-r$ gaps for the points $x_1,\ldots,x_r$, which I’ll assume are listed in consecutive order clockwise. However, this overcounts. Specifically, we’re counting each choice of $r$ points $n-r$ times. This may be a little hard to see, so let me use a specific example. Suppose that we put $x_1$ in $G_1$, $x_2$ in $G_2$, and so on, finally putting $x_r$ in $G_r$. This means that there is one unchosen point between $x_1$ and $x_2$, one unchosen point between $x_2$ and $x_3$, and so on to one unchosen point between $x_{r-1}$ and $x_r$, with all of the remaining unchosen points between $x_r$ and $x_1$.
Now suppose instead that we put $x_1$ in $G_2$, $x_2$ in $G_3$, and so on, finally putting $x_r$ into $G_{r+1}$. This also means that there is one unchosen point between $x_1$ and $x_2$, one unchosen point between $x_2$ and $x_3$, and so on to one unchosen point between $x_{r-1}$ and $x_r$, with all of the remaining unchosen points between $x_r$ and $x_1$. In other words, we get exactly the same circular progression of chosen and unchosen points. The same is true no matter which gap gets $x_1$, provided that $x_2,\ldots,x_r$ are consecutively put into adjacent gaps clockwise. There are $n-r$ gaps, and we could start by putting $x_1$ into any of them, so there are $n-r$ ways to get exactly the same circular progression of chosen and unchosen points. And what’s true of the arrangement that we get when we put the chosen points into consecutive gaps is true of any other arrangement as well. Thus, we’re counting each arrangement $n-r$ times and need to divide by $n-r$. Doing so gives us
$$\frac1{n-r}\binom{n-r}r=\frac1r\binom{n-r-1}{r-1}\;.\tag{1}$$
Of course you know that this isn’t right, since it’s missing a factor of $n$; what have we missed?
The problem is that we’ve only established the relative positions of the chosen points: we know how many unchosen points there are between consecutive chosen points, but we don’t know whether the first chosen point is point $1$, point $n$, or something in between. Thus, each of the arrangements of chosen and unchosen points that we’ve counted actually corresponds to the $n$ different choices of $r$ points with the same spacing between adjacent chosen points. And that gives us the missing factor of $n$: there are really
$$\frac{n}r\binom{n-r-1}{r-1}$$
ways to choose the $r$ points.
If we cared only about the spacing of the chosen points and not about their absolute positions around the circle, we’d not need to make that last correction: $(1)$ would be the right number.