Q&A: Michael Morton, developer and operator of the N9NE Group

By Richard N. Velotta

Friday, March 12, 2010 | 3 a.m.

It’s no surprise that Michael Morton, the developer and operator of the upscale N9NE Group restaurants and nightclubs at the Palms, is where he is today.

Morton’s family has created a number of fine dining establishments over the years. His father, Arnie, was the creator and operator of the original Playboy Clubs with Hugh Hefner, and he built one of the country’s most successful steakhouse chains, Mortons of Chicago.

His brother, Peter, co-founded the global Hard Rock Cafés and the Hard Rock Hotel in Las Vegas.

Michael Morton, who considers himself an entertainer with restaurants and nightclubs as his stage, partnered with the Maloof family to develop N9NE Steakhouse, Ghostbar, Rain, Nove Italiano and Moon at the Palms. In addition, he took a page out of his father’s playbook to design and operate the Playboy Club at the Palms with Hefner; and N9NE runs the Palms pool operations.

Morton operates the Ghostbar on the 33rd floor of the W Hotel Dallas in Ross Perot Jr.’s Victory Park, the entertainment center of the new American Airlines Arena in Dallas and the N9NE Steakhouse and Ghostbar flagship operations in Chicago.

Morton talked with In Business Las Vegas about N9NE Group, the city’s nightclub and fine dining business and how the club scene has changed since his arrival:

IBLV: N9NE Group has seven concepts operating at the Palms. How did you and Palms owner George Maloof first contact each other to start the operation?

Morton: I owned a nightclub at the corner of Harmon Avenue and Koval Lane called Drink that opened in 1995. That was our entree. We met through him hanging out at Drink. He thought it was the best nightclub he had ever been … the relationship started with me doing a nightclub here at the Palms. Shortly after that, after we worked on the nightclub, I said to him, “Hey, we’re building this great new steakhouse in Chicago.” He and (Maloof brothers) Gavin and Joe came to Chicago and they believed in it. They’re obviously men of great vision because it was not even drywalled yet and they certainly understood what we were trying to do, which was a sexy, contemporary American steakhouse.

Give me a short thumbnail sketch of the different operations.

In our first venture in Tower 1, we have three venues, which are N9NE Steakhouse, Ghostbar and Rain Nightclub. The concept at that point was to have three venues that were complimentary and you could make a whole night out of it. So you could go to N9NE Steakhouse and have dinner, go up and see these amazing views at Ghostbar and be in a lounge environment that’s comfortable, where you know the music. It’s really relaxed, small and intimate; the kind to get comfortable after dinner and have a few cocktails. Then, you kind of ramp up your night and go to Rain Nightclub — dancing and clubbing until the wee hours. It was really something that had the ability where you could really experience all the venues. Most people did and still do.

And the other venues?

We took over the pool. We initially didn’t have the pool in our program. It went through two expansions, and George asked us to run it for him. George brought in his architects and designers, and we all kind of collaborated on expansions.

The original venues opened in November 2001. These three new venues in the Fantasy Tower opened in October 2006. They’re stacked on top of each other, the top three floors of the tower. Going up in succession are the Nove Italiano. Above that is the Playboy Club and above that is Moon nightclub. The whole idea there was, “Come upstairs and you have everything you need.” They’re all interconnected by escalator and elevator. You can have an amazing meal by Chef Geno (Bernardo). He’s had a lot of accolades here at the restaurant. You can go right upstairs to the Playboy Club and you can lounge there and obviously you can gamble. It’s still the only Playboy Club in the world, although I think they’re going to be opening a couple of new ones. If you want to go from gaming and lounging to another nightclub, you can.

The vision behind Moon was that we had 25,000 square feet in Rain, so let’s do something smaller and exclusive. Each of these venues are an entire floor, about 12,000 square feet. The great feature of Moon is that the roof opens. You push a button and under 90 seconds the whole main room is under the stars in fresh air. It blows people’s minds.

How do you do that, do you just randomly open the roof when you feel like it?

We do it sporadically. You don’t want to do it too much, like anything else. It’s like the fire feature we have at Rain. We can shoot 3-foot balls of fire or 15-foot plumes. It’s one of those things that you want to do it the right amount of time. We like to keep the roof closed because it captures the fog system and the laser show that we do. But for just a totally different experience — boom — you open it up and people are shocked because when you’re in there, you don’t really know it’s a retractable roof.

Why is it advantageous to the Palms to contract for these clubs and restaurants?

If you look at many hotels up and down the Strip, they bring in people who are experts in those fields. They bring in great restaurateurs, great nightclub operators or entertainers because I think there’s an entrepreneurial spirit that individuals can capture that corporations may not be able to do — not that the Palms is a corporation, but certainly it is a big Las Vegas hotel. They have ownership in all of the venues, so it’s not like they leased us the space. We’re 50-50 partners. They get the benefit of ownership and having focused people operating the venues. It’s a smart business move.

Let’s talk a little about the restaurant side. How has the recession affected operations at N9NE Steakhouse and Nove Italiano?

I wish I could say it hasn’t, but it has. I’ll give you a true statistic that is remarkable to me because this is all I’ve ever done. We had 24 sequential quarters of growth at N9NE Steakhouse. Six years! Six years of growth! We never expanded, so we didn’t achieve that by building or doing crazy price increases. It was just by being busy. We went from 24 quarters to a declining restaurant market overall, not just in Las Vegas. We were late to the downturn, which is a testament to our customer loyalty. When I grew up working for my father at Mortons Steakhouse, it was always about customer satisfaction. That’s not enough anymore. I’m satisfied at many places that I go. It’s about customer loyalty. I think we treated people really, really well and that has helped us be more resilient. Certainly, expensive steaks and expensive wines are among the first things that people are going to say are luxury items they can pass by. Fortunately, we have other great value items. You don’t have to spend hundreds of dollars to get a great bottle of wine. I think we have 100 bottles under $100. People are being more price sensitive.

What have you had to do different for the company to make it through the bad times?

One of the things I’ve always concentrated on during the best of times is being a good value. You have to, to be stronger. You have to have more value propositions. When we opened, it was a bull market for many, many years, but you could always come in for a bowl of pasta for $18 or a piece of chicken that was very reasonably priced and a salad and get out of the restaurant in that $25 to $35 range. Our check averages may have come down, but we’ve always wanted to have that business. It would be stupid not to.

Have you had to reduce prices to keep the number of customers up?

We have not reduced prices. The only thing we did do was that on some of the more expensive items on the special carts, we have gone to less-expensive items on the specials cart.

Did you reduce the size of your portions?

Exactly the same portions.

What lessons do you think can be applied to other tourism and entertainment-related businesses?

I think in some places, specifically here in Las Vegas, that it’s awfully hard to have a 6,000-, 7,000- or 8,000-room hotel and be able to provide the one-on-one customer connection that we have. The Palms now has more than 1,000 rooms, that’s not a boutique. You’ll never find an owner like George Maloof. You can find him on property pretty much any time. I just think the bigger the scale, the harder it is to recover from a lot of these things. But I think everybody’s doing the same thing. If you go around the city right now, everybody’s got preshow menus, everybody’s running specials that I think are more cost-effective. Unfortunately, we all know what’s happened to the room rates and adding 10,000 rooms right now is unfortunate timing. I think it’s back to the block-and-tackle. It’s back to the basics. I know it’s cliché, but it’s customer service, value and back to the basics. I think some of the people who have gotten away from that are certainly back to it.

The nightclub side of the business has some different issues. You were one of the early Las Vegas entrants with the opening of Drink in 1995. What are some of the biggest changes the industry has seen since your arrival?

I love telling this story because it’s interesting. In 1995, when we opened Drink, there were virtually no nightclubs. There was the Shark Club on Harmon and Club Rio. Club Rio was more like a cabaret. We certainly didn’t help the Shark Club, but they had a great 10-year run. They closed shortly after we opened. So here we were, being supported by every hotel. If you looked at our parking lot, there were limousines from the Mirage, from Caesars, from MGM. It went from that to we know what happens in Las Vegas: If a hotel sees something that is successful, they want it in their hotel. By 1997, it started: the onslaught. By 1999, almost every hotel had opened or was in the process of opening a nightclub, which obviously didn’t help us at Drink. We were the oldest one. How can you compete with casino dollars? You can’t buy taxicab toppers and billboards as a small independent location like we were. So I’m pretty proud that had the first real nightclub here. Look at it now. It’s the nightclub capital of the world, hands down. And it hasn’t been that long.

So on one hand, you’re proud of the fact that you jump-started this, but on the other, you’ve helped create this whole universe of competition. How do you stay ahead of that competition?

We’re lucky. I was just writing my investors’ quarterly letter. There are a lot of places that opened after we did that have closed. You’ve got to reinvent yourself and you’ve got to stay fresh and it’s not easy. I’ll give you a great example: Paul Oakenfold at Rain. There are power rankings for DJs and he did for DJ’ing what a lot of athletes did for their sports in terms of allowing them to have opportunities that didn’t exist before. He was just blowing up the DJ world.

In October 2008, Paul started his residency here. It was his first United States residency. He’s only had residencies in Leicester (England) or London. That was a groundbreaking deal for us. Of course, we did some really neat elements for him. We had a special stage for Paul. It’s electronic music, which I think is the wave of the future. You’re going to hear hip-hop always, but if you go to these music festivals today, the majority of the electronic festivals are kids — all 15-, 16- and 17-year-old kids. We’re always a bit behind Europe in this kind of music.

Bottom line, is that with Paul Oakenfold we did the first Cirque du Soleil-style show under Perfecto, which is Paul’s label. So we have ninjas dropping out of the ceiling and robots — they’re human performers, but you would think they’re robots if you saw them. And we have alien voyeurs. So we created this whole show, coupled with the most famous DJ in the world and it changed Rain overnight.

That’s a great example, but there are a lot of other things you’ve got to do. It’s a constant battle. Look at CityCenter: 19 restaurants and 15 bars open in one hotel. Couple that with Vanity, the new nightclub that just opened at the Hard Rock. It’s nonstop. Wynn is building a new pool to compete with Ditch Fridays (at the Palms) and Rehab (at the Hard Rock).

A UNLV professor once referred to them as “battleships of capital, steaming around trying to blow each other out of the water.” What a great analogy, these massive boats trying to blow each other up.

The nightclub industry has been hit with some scandals in recent years with the IRS investigations at Pure and LAX; and Planet Hollywood being fined by gaming regulators for illegal activities that occurred at Privé. How have those affected the industry?

It put a cloud over a highly professional industry that has some serious business ventures. I don’t care if you go to New York or L.A. or London or anywhere else, unfortunately, there are bad apples. Because it’s in a nightclub, it put a shadow on the whole thing. It changed things for everybody. There were gaming directives that came out and letters that came out. Quite frankly, it was unfair. But we run a good business and we’ve never had to worry about it. We do things above and beyond, as most people do, to protect their business. Unfortunately, there were a couple of bad guys who did some really bad stuff. But it kind of opened Pandora’s box

Did the actions at Privé result in any operational changes at N9NE Group properties?

No operational changes. It was so alarming and so serious. The thing about the IRS raiding a casino. I don’t think something like that has happened for decades. If you don’t think I didn’t call up every director and head of security and the director of operations, the president, the vice president, and sit down and say, “Let’s double-check and triple-check everything. Let’s have meetings with all the employees.” We did a series of town-hall-style meetings and said, “Have you guys noticed anything?” We can’t notice everything because we have 800 employees. “If you guys notice anything weird that’s taking place, please help us.” We already have a great anonymous ability for them to go to (human resources) if they want to. But we just said, “Hold on a minute, let’s take a step back and review everything we’re doing.” No changes came out of it because we’re diligent about it. We have a privileged license. This is a privilege to do this. And I think some people forgot that. Those guys certainly didn’t think that way. When something like that happens, they’re going to review their internal policies, procedures, mechanisms and controls from top to bottom. That’s what we did.

Let’s face it: A lot of the nightclub patrons expect the Las Vegas club scene to be a wild place. Do you think the things that happened at Privé may have boosted business?

No. I don’t think so. I’m not privy to Privé. I’ve only read the same articles that you’ve read. It’s just bad for business. There’s karma out there and this is bad karma. Allowing people to do illegal things is bad for business. Only bad can come of it because you become more regulated and in the end, people might have less fun. They’re talking about provisions like only allowing employees to dance on platforms, not patrons. Patrons like to dance on platforms. They like to show off. So it’s a real negative.

Many view a night in a Las Vegas club as a pretty expensive proposition. Where do your customers get their money?

Great question. Bottle service got so carried away. We’ve never gouged people and there’s a social responsibility about how people should drink. Some places were, quite frankly, were raping people. We never did that. So let’s say you don’t gouge and you’re trying to give good value. You’re still talking about a $500 bottle of vodka. It’s very expensive, but guess what? You don’t have to do it. And a lot fewer people are and a lot more people are going out the way they used to go out: just go to the bar and order a vodka and Red Bull for 8 or 10 or 12 bucks. You don’t have to go buy three bottles and spend $2,000. Some people want that and if they want that, we’ll give it to them in a responsible way.

But I think the thing about youth is that young people don’t worry about next year. I remember being 22. You live paycheck to paycheck. Did you get your rent paid? And people are loyal to this town. They save up and when they come out, they want to go big. Young people do not have the weight of the world on their shoulders, particularly in a recession. They don’t worry about their homes being underwater and all the other things that maybe somebody with two or three kids is worrying about.

Some have said nightclubs have been detrimental to traditional Las Vegas entertainment and showrooms because people who visit go to the clubs instead of going to shows. What’s your take?

That’s silly. We live in a capitalist society. If there’s not a demand, there’s not a supply. A nightclub experience is no substitute for a show. Look at Cirque. It’s got more shows than ever. Have some shows become aged and maybe have run their course? Sure. It’s not us who decide that. The consumer decides it. You wouldn’t have had these 30 or 40 nightclubs and lounges in town if there wasn’t demand. They would fold. I would say it’s the opposite. I think this has been great for Las Vegas. It’s exciting, and it’s what people want and we give it to them at the highest level.

What the biggest changes you expect to see in the club scene in the years ahead?

I think, just because of the economic climate, you’re not going to see waves and waves of new clubs coming on line. I think you’ll see some spaces being revamped. But when there’s not new hotels, there’s not new clubs. Cosmopolitan is going to come onboard. It’s going to have new places. And Fontainebleau will happen sometime down the road. This is what we’re going to have for a while.

The biggest change is that the supply kept growing remarkably fast. That’s going to come to a screeching halt for the most part. A nightclub in Mandalay (Bay) closed, but somebody’s going to go in and reopen it. Places are going to get more recycled. Don’t get me wrong, there will always be new clubs because there are always new, great ideas in such a creative town. But I think the big players in town are going to be the ones that will be here for a while.

The origin of the N9NE name and logo: Is it true that it comes from the fact that you and your cofounding partner, Scott DeGraff, knew each other since you were 9 years old?

It is. That’s where it originally started. We originally opened the N9NE Steakhouse in Chicago, which we opened in April 2000. Ten years, that’s scary. And the N-9-N-E, we were just having fun with that. Some look better in print and on T-shirts, some look better on menus. It’s just us having a little fun with it.