Item 1. Business
Item 1. BUSINESS
Available Information
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including Canterbury Park Holding Corporation, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. The Company files annual reports, quarterly reports, proxy statements and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act).
We also make available free of charge through our website (www.canterburypark.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnishes it to, the SEC.
Overview
Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) is the holding company for and parent company of two subsidiaries, Canterbury Park Entertainment LLC (“Canterbury Entertainment”) and Canterbury Development (“Canterbury Development”) and an indirect subsidiary Canterbury Park Concessions, Inc. which is wholly-owned by Canterbury Entertainment. As used herein, the term “Company” or “we” includes Canterbury Park Holding Corporation and its subsidiaries unless the context indicates otherwise.
We divide our business into four segments: (i) horse racing, (ii) Card Casino, (iii) food and beverage, and (iv) real estate development. The horse racing segment represents our pari-mutuel wagering operations on simulcast and live horse races; the Card Casino segment represents our unbanked card operations; the food and beverage segment includes concessions, catering, and events services provided at the Racetrack; and the development segment represents our real estate development operations. We conduct our (i) horse racing, (ii) Card Casino, and (iii) food and beverage segments through Canterbury Entertainment. We conduct our real estate development segment through Canterbury Development.
COVID-19 Impact on 2020 Racetrack Operations
Due to the COVID-19 coronavirus, our 2020 operating results were significantly different than in prior years and there is continuing uncertainty about the duration and the effect of COVID-19 coronavirus on our 2021 and future operations.
We temporarily suspended all Card Casino, simulcast, and food and beverage operations at Canterbury Park on March 16, 2020 in response to concerns about the COVID-19 coronavirus. We determined this voluntary suspension of activities was in the best interest of the health and safety of our guests and team members and would provide us an opportunity to review and update operational best practices and strategies based on what was then known about this public health situation and future developments. Our Card Casino, simulcast, and food and beverage operations remained closed until June 10, 2020.
We began our live thoroughbred and quarter horse racing season at Canterbury Park on Wednesday, June 10, 2020. The 2020 live racing season was scheduled for 53 days of live racing Monday through Thursday between June 10 and September 16, 2020. We hosted a limited number of spectators during live racing and also resumed simulcast wagering on Wednesday, June 10, 2020. We reopened of the Canterbury Park Card Casino on June 13, 2020, subject to Minnesota state guidelines on capacity limitations, social distancing and cleaning protocols.
Pursuant to subsequent Executive Orders by Minnesota’s Governor, the Company’s Card Casino, simulcast, and food and beverage operations at Canterbury Park were temporarily closed again from November 21, 2020 through January 10, 2021. We reopened our Card Casino, simulcast, and food and beverage operations on January 11, 2021, subject to current statewide COVID-19 pandemic-related restrictions.
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In the Business Section and in the Management's Discussion and Analysis Section of this Form 10-K, the Company discusses how COVID-19 affected the Company's 2020 operations and how the Company expects it may affect 2021 operations.
While we temporarily suspended all Card Casino, simulcast, and special event operations at Canterbury Park for a total of approximately eighteen weeks in 2020, we continued to conduct our real estate development operations in 2020, which were not affected by the executive orders.
Canterbury Park Entertainment
Through Canterbury Entertainment, we host pari-mutuel wagering on thoroughbred and quarter horse races and “unbanked” card games at our Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing. Our pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino has historically operated 24 hours a day, seven days a week and has historically offered both poker and table games at up to 80 tables. We also derive revenues from related services and activities, such as food and beverage, parking, advertising signage, publication sales, and catering and events held at the Racetrack. The ownership and operation of the Racetrack and the Card Casino are significantly regulated by the Minnesota Racing Commission (“MRC”). Canterbury Entertainment is the direct owner of all land, facilities, and substantially all other assets related to our pari-mutuel wagering, Card Casino, concessions and other related businesses (“Racetrack Operations”), and is subject to direct regulation by the MRC. We own approximately 330 acres of land as of December 31, 2020, in Shakopee, Minnesota where the Racetrack is located.
Traditionally, our revenues have been principally derived from three activities: Card Casino operations, wagering on live and simulcast horse races, and food and beverage sales. For the year ended December 31, 2020, revenues from Card Casino operations represented 60.1% of total revenues, wagering on horse races generated 32.4% of total revenues, and food and beverage revenue represented 7.5% of total revenues. These components of revenue are described in more detail below.
Horse Racing Operations
The Company’s horse racing operations consist of year-round simulcasting of horse races from around the U.S. and internationally, and wagering on live thoroughbred and quarter horse races (“live meets”) held on a seasonal basis beginning in May and generally concluding in September each year. At the Racetrack, various aspects of our operations are subject to approval by the MRC and the organization that represents a majority of the owners and trainers of the horses who race at the Racetrack, which is the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”).
All of the wagering on simulcast and live horse races at the Racetrack is pari-mutuel wagering. In pari-mutuel wagering, bettors wager against each other in a pool, rather than against the operator of the facility or with preset odds. From the total handle wagered, the Minnesota Pari-Mutuel Horse Racing Act (the “Minnesota Racing Act”) specifies the maximum percentage, referred to as the “takeout,” that may be withheld by the Racetrack, with the balance returned to the winning bettors.
Pari-mutuel wagering can be divided into two categories: straight wagering pools and multiple wagering pools, which are also referred to as “exotic” wagering pools. Examples of straight wagers include: “win,” “place,” and “show.” Examples of exotic wagers include: “daily double,” “exacta,” ”trifecta,” and “pick four.”
The amount of takeout earned by the Company on pari-mutuel wagering depends on where the race is run and the form of wager (straight or exotic). The total maximum takeouts are 17% from straight wagering pools and 23% from exotic wagering pools. From this takeout, Minnesota law requires deductions for purses, pari-mutuel taxes, and payments to the Minnesota Breeders’ Fund (“MBF”). The balance of the takeout remaining after these deductions is commonly referred to as the “retainage.”
While the Minnesota Racing Act regulates that a minimum of 8.4% of the live racing handle be paid as purses to the owners of the horses, purse contributions from other sources are governed by a Horse Association Agreement dated June 4, 2012 by and among the Company, the Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe, and the horsepersons’ associations: the MHBPA, the Minnesota Thoroughbred Association (“MTA”) and the Minnesota Quarter Horse Racing Association (“MQHRA”). The MHBPA is the horseperson’s organization representing the majority of horsepersons at the Racetrack.
In addition, the MBF receives 1% of the handle. The current pari-mutuel tax applicable to wagering on all simulcast and live races is 6% of takeout in excess of $12 million during the twelve-month period beginning July 1 and ending the following June 30.
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Net revenues from pari-mutuel wagering on live races run at the Racetrack consist of the total amount wagered, less the amounts paid (i) to winning patrons, (ii) for purses, (iii) to the MBF and (iv) for pari-mutuel taxes to the State of Minnesota. Net revenues from pari-mutuel wagering on races being run at out-of-state racetracks and simulcast to the Racetrack have similar expenses but also include a host fee payment to the host track. The host fee, which is calculated as a percentage of monies wagered (generally 3.0% to 10.0%), is negotiated with the host track and must comply with state laws governing the host track. Pari-mutuel revenues also include commission and breakage revenues on live on-track and simulcast racing, fees received from out-of-state racetracks for wagering on our live races and proceeds from unredeemed pari-mutuel tickets.
Additionally, Minnesota Advanced Deposit Wagering (“ADW”) legislation allows Minnesota residents to engage in pari-mutuel wagering on out-of-state horse races online with a prefunded account through an ADW provider. The Company collects a percentage of monies wagered (generally 3.25% to 5.0%) by Minnesota residents through the ADW provider as a source market fee. The Company pays 28% of the collected revenues to another Minnesota-based horse track, and records the remaining 72% as revenues and records expenses of at least 50% for purses and breeders’ awards.
Live Racing
For the years ended December 31, 2020 and 2019 , the Racetrack hosted 53 days and 66 days, respectively, of live racing beginning in May (in 2019) and June (in 2020) and concluding in September. Currently, Minnesota law requires the Company to schedule a minimum of 125 days of live racing annually, unless a majority of horsepersons at the Racetrack agree to a fewer number of live racing days.
We are a party to a Cooperative Marketing Agreement (“CMA”) originally dated June 4, 2012 with the Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Pursuant to CMA, we also entered into a Horse Association Agreement with the horsepersons’ associations and SMSC in which the MHBPA agreed to waive the 125-day requirement if at least 65 days of live racing are scheduled each year beginning in 2013.
On June 1, 2020, we entered into a Fifth Amendment Agreement to the CMA, which became effective on June 8, 2020 upon MRC approval. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. This amount was calculated by multiplying the expected 52 days of 2020 live horseracing times the amount of $108,077 per live horseracing day. Consistent with the original CMA, the Company did not receive any part of the purse enhancement amount. Under the Fifth Amendment, the SMSC also agreed to pay the $100,000 2020 Annual Horse Association Payment payable under the Horse Association Agreement. The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,280,000 per year.
The Fifth Amendment also provides that the SMSC was not required to pay the Company a 2020 annual marketing payment. Instead, the First Amendment provides that the Company did use $1,248,343 of annual marketing payments from prior years that were unspent as of January 1, 2020 for joint marketing efforts for the mutual benefit of the Company and SMSC. The Company used a portion of these funds to promote, improve, or assist in the operation of horse racing at the Racetrack upon approval by the SMSC. The annual marketing payment that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $1,620,000 per year.
In connection with the Fifth Amendment, the MHBPA executed a Consent and Waiver on June 1, 2020 pursuant to the Horse Association Agreement. Under the Consent, the MHBPA waived the 125-day requirement for live racing days conducted by the Company, with no minimum number of live racing days required in 2020, provided that there are at least 65 live racing days each year beginning in 2021.
If, for any reason, the MHBPA ceases to be bound by its obligations under the Horse Association Agreement, the Company’s operations could be adversely affected by a decrease in the daily purses, potential reduction in the quality of horses, lower attendance, lower overall average amount wagered (“handle”), and substantially greater operating expenses.
The Company has agreed for the term of the CMA that it would not promote or lobby the Minnesota legislature for expanded gambling authority and would support the SMSC’s lobbying efforts against expanding gambling authority.
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Simulcasting
Simulcasting is the process by which live horse races held at one facility (the “host track”) are transmitted simultaneously to other locations to allow patrons at each receiving location (the “guest track”) to place wagers on races transmitted from the host track. Monies are collected at the guest track and the information with respect to the total amount wagered is electronically transmitted to the host track. All of the amounts wagered at guest tracks are combined into the appropriate pools at the host track with the final odds and payouts based upon all the monies in the respective pools.
The Company is able to offer simulcast racing from up to 20 racetracks per day, seven days a week, 364 days per year, including Churchill Downs, Santa Anita, Gulfstream Park, Belmont Park, and Saratoga Racecourse. In addition, races of national interest, such as the Kentucky Derby, the Preakness Stakes, the Belmont Stakes, and the Breeders’ Cup supplement the regular simulcast program. The Company regularly evaluates its agreements with other racetracks to offer the most popular simulcast signals of live horse racing that are reasonably available.
Under federal and state law, in order to conduct simulcast operations either as a host or guest track, the Company must obtain the consent of the MRC and the MHBPA as the organization that represents a majority of the owners and trainers of the horses who race at the Racetrack. As these consents are obtained annually, no assurance can be given that the MRC and the MHBPA will allow the Company to conduct simulcast operations either as a host or guest track after 2020. If either the MRC or the MHBPA does not consent, the Company’s operations could be adversely affected by a decrease in pari-mutuel revenue, potential reduction in the quality of horses, lower attendance, and lower overall handle.
Card Casino Operations
The Card Casino may offer gaming 24 hours per day, seven days per week, and offers two forms of unbanked card games: poker and table games.
Poker games, including Texas Hold ‘Em, Stud, and Omaha, with betting limits per hand ranging between $2 and $100, are currently offered in the poker room. A dealer employed by the Company regulates the play of the game at each table and deals the cards but does not participate in play. In poker games, the Company is allowed to deduct a percentage from the accumulated wagers and impose other charges for hosting the activity but does not have an interest in the outcome of a game. The Company may add additional prizes, awards, or money to any game for promotional purposes.
As of March 2021, the Card Casino was offering the following table games: Blackjack, Mississippi Stud, Fortune Pai Gow, Three Card Poker, Ultimate Texas Hold ‘Em, EZ Baccarat, Criss Cross Poker, Free Bet Blackjack, and I Luv Suits. The Company has the option to offer banked games under the Minnesota law governing Card Casino operations but currently only offers “unbanked” games. “Unbanked” refers to a wagering system or game where wagers lost in card games are accumulated into a player pool liability for purposes of enhancing the total amount paid back to winning players. The Company can only serve as custodian of the player pool, may not have an active interest in any card game, and does not recognize amounts that dealers “win” or “lose” during the course of play as revenue.
The primary source of table games revenue is a percentage of the buy in received from the players, aggregated up to 20% per day, as defined by the MRC regulations, as compensation for providing the Card Casino facility and services, referred to as “collection revenue.” In addition, several table games offer a progressive jackpot. The player has the option of playing the jackpot with the opportunity to win some or the entire jackpot amount, depending upon the player’s hand.
The primary source of poker revenue the Company collects is a “rake” of 5%-10%, depending on the limit of the game, of the poker pot up to a maximum of $4 per hand. In addition, poker games offer progressive jackpots for most games. In order to fund the poker jackpot pools, the dealer withholds $2 from each final pot in excess of the $15 minimum.
Under Minnesota law, the Company is required to pay 10% of the first $6 million of gross Card Casino revenues towards purses for live horse racing at the Racetrack. After meeting the $6 million threshold, the Company must pay 14% of gross Card Casino revenues as purse monies. Of funds allocated for purses, the Company pays 10% of the purse monies to the Minnesota Breeders’ Fund (the “MBF”), which is a fund apportioned by the MRC among various purposes related to Minnesota’s horse breeding and horse racing industries. The remaining 90% of purse monies are divided between thoroughbred (90%) and quarter horse (10%) purse funds.
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Food and Beverage Operations
We derive revenue from our food and beverage operations through sales at concession stands, restaurant and buffet, bars, and other food venues. The Company currently offers two, year-round café style restaurants and full service bars within the Card Casino and simulcast area. The Card Casino offers tableside menu service 24 hours a day. Our Triple Crown Club offers lounge services along with a buffet restaurant. During live racing, a wide variety of concession style food and beverage options are available to our guests.
The food and beverage operations also include our catering and events services. We are the fourth largest event space in the Twin Cities with more than 100,000 square feet of available space. Our facilities provide a variety of purposes for year-round events and other activities. Our event space has been used for craft shows, trade shows, pool and poker tournaments, automobile and other utility vehicle shows, major art shows, and fundraisers. Our outdoor spaces have been used for concerts, snowmobile races, and other competitions. In 2016, we completed construction of a redesign of the infield of the Racetrack to use the space as a concert and event area. In addition to event space, we rent space in our horse stable area for boat storage during the winter months.
Development Operations
Beginning in 2015, we began executing our development plan for Company land that was not necessary to conduct our Racetrack Operations (grandstand, racetrack, stable area, parking areas, and land for other facilities including the expo center). Canterbury Development is not subject to direct regulation by the MRC. Originally, approximately 140 acres were considered underutilized and were targeted for real estate development by Canterbury Development complementary with our Racetrack Operations.
In 2020, Canterbury Development continued to pursue various development opportunities for the underutilized land in a project known as Canterbury Commons™. Canterbury Development continues to pursue various mixed use development opportunities, such as residential development, office, restaurants, hotel, entertainment, and retail operations. As of December 31, 2020, Canterbury Development has contributed approximately 36 acres of land to three separate joint ventures described below.
In addition, we have agreed to sell several parcels of land to third parties that will then develop the property as described below. Although we will have no continuing ownership in these land sales, we believe the future developments of this property contribute to the overall vitality of Canterbury Commons.
The following is a summary of our real estate development projects within Canterbury Commons as of December 31, 2020:
● Our first real estate development project in Canterbury Commons began in 2018 with the first of two joint venture agreements between Canterbury Development and an affiliate of Doran Companies (“Doran”) for the development of the upscale Triple Crown Residences at Canterbury Park. Construction of the 321-unit first phase, which is being developed pursuant to the first joint venture agreement, began in late 2018 with initial occupancy on June 1, 2020. As of the end of December 2020, all 321 units were available for occupancy. In August 2020, Doran exercised its option for Phase II of the project, which will include an additional 300 residential units, and the Company entered into a second joint venture agreement with Doran. Pursuant to this second agreement, in early August 2020, the Company transferred roughly 10 acres of land to the second joint venture with Doran. In addition to receiving 27.4% ownership in the Doran Phase II joint venture, the exchange resulted in the repayment of a $2.9 million note receivable which was on the Company’s balance sheet as a related party receivable as of June 30, 2020. Groundwork on the Doran Canterbury II site began in October 2020, paving the way for the ground-up construction of the second phase of apartments, which is anticipated to begin in the summer of 2021.
○ As a result of these joint ventures, Canterbury Development holds a 27.4% equity interest in Doran Canterbury I, LLC governed by an operating agreement effective as of March 1, 2018 with Doran Shakopee LLC, and Canterbury Development holds a 27.4% equity interest in Doran Canterbury II, LLC governed by an operating agreement effective as of July 30, 2020 with Doran Shakopee LLC.
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● Development work related to the Company’s joint venture with Greystone Construction (“Greystone”) was also underway on the southwest portion of the Canterbury Commons site. Pursuant to this joint venture, Greystone is developing a 13-acre land parcel with potential uses expected to include hospitality, dining, residential, commercial and service-oriented retail. Greystone’s development work to date is primarily for a new 28,000 square foot office building, with Greystone committed to occupy the second floor as its new corporate headquarters. The project is expected to be completed by July 2021.
○ As a result of this joint venture, Canterbury Development entered into an operating agreement with an affiliate of Greystone Construction, as the two members of a Minnesota limited liability company named Canterbury DBSV Development, LLC (Canterbury DBSV). Canterbury Development’s equity contribution to Canterbury DBSV was approximately 13 acres of land, which were contributed to Canterbury DBSV on July 1, 2020. In connection with its contribution, Canterbury Development became a 61.87% equity member in Canterbury DBSV.
● Development work by Pulte Homes of Minnesota on 109 new row homes and townhome residences at Canterbury Commons is expected to start in the spring of 2021 following approvals. Lifestyle Communities is working on its approvals with the City of Shakopee for a new cooperative community featuring a 56-unit, four-story building with over 5,000 square feet of amenity spaces that is expected to begin construction in the fall of 2021.
○ In April 2020, Canterbury Development entered into two agreements to sell approximately 14 acres of land on the west side of the Racetrack to Pulte Homes of Minnesota and Lifestyle Communities for total consideration of approximately $3,500,000. Closing of each of these transactions is subject to the satisfaction of certain customary conditions and we expect these transactions to close in 2021.
In addition to the approximately 50 acres under development or under contract, the Company continues to make progress with developer and partner selection for the remaining approximately 90 acres of the Canterbury Commons development. While most of the development that is underway is residential, the focus will be on entertainment, office, retail, hotel and restaurant uses for the next phase of Canterbury Commons. Canterbury expects to make additional announcements of new partners for this phase in the future.
See footnote 12 of the consolidated financial statements for more detailed information on recent transactions and development activity.
Competition
The Company faces direct competition from Running Aces Harness Park ("Running Aces") in Columbus Township, Anoka County, Minnesota, a racetrack and card room that is located approximately 50 miles from Canterbury Park. Running Aces offers pari-mutuel wagering on live races of standardbred (“harness”) horses on a seasonal basis and year round wagering on simulcasting of all breeds of horse races. In addition to pari-mutuel wagering, Running Aces operates a card room that directly competes with the Company’s Card Casino.
The Company operates in a highly competitive wagering and gaming environment with a large number of participants. The Company competes with competitive wagering operations and activities that include tribal casinos, state-sponsored lotteries, and other forms of legalized gaming in the U.S. and other jurisdictions. The Company competes with a number of tribal casinos in the State of Minnesota that offer video slot machines, table games, and both banked and unbanked card games, including Minnesota’s largest casino, Mystic Lake, which is located approximately four miles from the Racetrack and which is owned by the Shakopee Mdewakanton Sioux Community (the "SMSC").
Additionally, Internet-based interactive gaming and wagering is growing rapidly and adversely affects all forms of wagering offered by the Company. Legislation became effective November 1, 2016 in Minnesota that allowed the Company to begin collecting source market fees from companies that offer ADW wagering. These companies provide legal simulcast horse wagering over the internet. The legislation now allows the Company to recoup a percentage of all simulcast horse racing wagers made by Minnesota residents over the internet on out-of-state races; however, the legal clarification of this type of wagering will significantly intensify the competition in the marketplace.
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The Company also faces indirect competition from a variety of sources for discretionary consumer spending including spectator sports and other entertainment and gaming options. In the Minneapolis-Saint Paul metropolitan area, competition includes a wide range of live and televised professional and collegiate sporting events. In addition, live horse racing competes with a wide variety of summer attractions, including amusement parks, sporting events, and other local activities.
Finally, the Company competes with racetracks located throughout the United States in securing horses to run at the Racetrack. Attracting owners and trainers that can bring high quality horses to our Racetrack is largely dependent on our ability to offer competitive purses. The Company experiences significant competition for horses from racetracks located near Des Moines, Iowa and Chicago, Illinois. We expect this competition to continue for the foreseeable future.
Canterbury Development and its joint ventures face competition from developers of other residential, mixed use, office, retail, hotel and entertainment spaces around Shakopee, Minnesota and elsewhere in Minnesota. These other developers may be larger and have more resources than Canterbury Development or than Canterbury Development and its developer partners on a combined basis. The leasing of real estate is highly competitive. The principal competitive factors are rent, location, lease term, lease concessions, services provided and the nature and condition of the property to be leased. The Canterbury Development joint ventures will directly compete with all owners, developers and operators of similar space in the areas in which our properties are located. The number of competitive multifamily properties in our particular market could adversely affect lease rates at residential properties in Canterbury Commons, as well as the rents able to be charged. In addition, other forms of residential properties, including single family housing and town homes, provide housing alternatives to potential residents of luxury apartment communities like our Triple Crown Residences at Canterbury Park. Likewise, the competition for high quality tenants for retail, office and other spaces is intense. In order to be successful, our real estate joint ventures must have high lease rates, competitive rental rates, and maintain high occupancy rates with a financially stable tenant base.
We may again in the future seek developers or other partners for joint venture arrangements or opportunities for Canterbury Development to develop our properties. We will be competing with other property owners, both around Shakopee and elsewhere, for high quality builders, commercial and residential real estate firms, and developers that share our vision for Canterbury Commons. We have in the past and may agree in the future to sell parcels of land to third parties that will then develop the properties and in that case, we will also be in competition with other sellers of properties for purchasers. Although we will have no continuing ownership in these land sales, we believe that the ability to effectively compete for tenants will be a factor in the purchasers’ selection of our property over other competing properties for their developments.
Regulation
General
The ownership and operation of the Racetrack in Minnesota is subject to significant regulation by the MRC under the Minnesota Racing Act and the rules adopted by the MRC. The Minnesota Racing Act governs the allocation of each wagering pool to winning bettors, the Racetrack, purses, pari-mutuel taxes, and the MBF, and empowers the MRC to license and regulate substantially all aspects of horse racing in the State. The MRC, among other things, grants operating licenses to racetracks after an application process and public hearings, licenses all racetrack employees, jockeys, trainers, veterinarians, and other participants, regulates the transfer of ownership interests in licenses, allocates live race days and simulcast-only race days, approves race programs, regulates the conduct of races, sets specifications for the racing ovals, animal facilities, employee quarters and public areas of racetracks, regulates the types of wagers on horse races, and approves significant contractual arrangements with racetracks, including management agreements, simulcast arrangements, and totalizator contracts.
A federal statute, the Interstate Horse Racing Act of 1978, also requires that a racetrack must obtain the consent of the group representing the horsepersons (owners and trainers) racing the breed of horses that race a majority of the time at the racetrack (which is the MHBPA), and the consent of the state agency regulating the racetrack (in Minnesota, the MRC), in order to transmit simulcast signals of its live races or to receive and use simulcast signals from other racetracks.
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Issuance of Class A and Class B Licenses to the Company
The Company holds a Class A License, issued by the MRC, that allows the Company to own and operate the Racetrack. The Class A License is effective until revoked, suspended by the MRC, or relinquished by the licensee. Currently, the fee for a Class A License is $252,000 per fiscal year.
The Company also holds a Class B License, issued by the MRC, that allows the Company to sponsor and manage horse racing on which pari-mutuel wagering is conducted at its Class A licensed racetrack and on other horse races run at out-of-state locations as authorized by the MRC. The Class B License is renewable each year by the MRC after a public hearing (if required by the MRC). Currently, the fee for the Class B License is $500 for each assigned race day on which live racing is actually conducted and $100 for each day on which simulcasting is authorized and actually takes place.
In addition, the law requires that the Company reimburse the MRC for actual costs, including stewards, state veterinarians and drug testing, related to the regulating of live racing. For fiscal years ended December 31, 2020 and 2019 , the Company paid $153,000 and $643,000 respectively, to the MRC as reimbursement for costs of regulating live racing operations.
The MRC is also authorized by the Racing Act to regulate Card Casino operations. The law requires that the Company reimburse the MRC for its actual costs, including personnel costs, of regulating the Card Casino. For fiscal years ended December 31, 2020 and 2019 , the Company paid $265,000 and $245,000, respectively, to the MRC as reimbursement for costs of regulating Card Casino operations.
On January 19, 2000, the MRC issued an additional Class B License to the Company that authorized the Company to host unbanked card games. The Class B License is renewable each year by the MRC after a public hearing (if required by the MRC). Currently, the Class B License fee of $10,000 per calendar year is included in the Class A License fee of $252,000 per calendar year.
Limitation on the Number of Class A and Class B Licenses
Pursuant to the Racing Act, so long as the Racetrack maintains its Class A License, no other Class A License may be issued to allow an entity to own and operate a racetrack in the seven county metropolitan area where thoroughbred and quarter horses are raced. However, the Racing Act provides that the MRC may issue an additional Class A License within the seven-county metropolitan area, if the additional license is issued for a facility that, among other conditions, is located more than 20 miles from the Racetrack, contains a track no larger than five-eighths of a mile in circumference, and is used exclusively for harness racing. In January 2005, this additional Class A license was issued for the location that later became known as Running Aces (see “Competition” above).
Limitation on Ownership and Management of an Entity that holds a Class A or Class B License
The Racing Act requires prior MRC approval of all officers, directors, 5% shareholders or other persons having a present or future direct or indirect financial or management interest in any person applying for a Class A or Class B license, and if a change of ownership of more than 5% of the licensee’s shares is made after an application is filed or the license issued, the applicant or licensee must notify the MRC of the changes within five days of this occurrence and provide the information required by the Racing Act.
Local Regulation
The Company’s operations are subject to state and local laws, regulations, ordinances, and other provisions affecting zoning, public health, and other matters that may have the effect of restricting the uses to which the Company’s land and other assets may be used. Also, any development of the Racetrack site and Canterbury Commons is, among other things, subject to applicable zoning ordinances and requires approval by the City of Shakopee and other authorities. There can be no assurance these approvals will be obtained for any future development the Company proposes.
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Recent Legislation
Minimum Wage Legislation
In 2014, Minnesota legislation enacted into law an increase in the minimum wage that must be paid to most Company employees. Beginning January 1, 2018, the minimum wage was set to increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2021 is $10.08 per hour. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse financial impact on the Company in 2014 through 2020, and will continue to have an adverse impact on the Company. We have implemented measures to partially mitigate the impact of this increase by raising our prices and reducing our employee count. These measures could themselves have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the Racetrack.
Advanced Deposit Wagering Legislation
Minnesota ADW legislation that became effective November 1, 2016, requires ADW providers to be licensed by the MRC and established licensing criteria and regulatory oversight of ADW providers doing business in the State of Minnesota. The law allows licensed racetracks to negotiate separate agreements with the ADW providers to remit source market fees to those racetracks. The ADW source market revenue to the Company totaled approximately $1,633,000 and $941,000 for the fiscal years ended December 31, 2020 and 2019 , respectively. As part of the agreement, 50% of source market fees is allocated to purse accounts and the MBF.
Cooperative Marketing Agreement
On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse through horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA.
On June 1, 2020, we entered into a Fifth Amendment Agreement to the CMA, which became effective on June 8, 2020 upon MRC approval. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. This amount was calculated by multiplying the expected 52 days of 2020 live horseracing times the amount of $108,077 per live horseracing day. Consistent with the original CMA, the Company will not receive any part of the purse enhancement amount. Under the Fifth Amendment, the SMSC also agreed to pay the $100,000 2020 Annual Horse Association Payment payable under the Horse Association Agreement. The annual purse enhancement that the SMSC is obligated to pay under Agreement for 2021 and 2022 was not changed and remains at $7,280,000 per year.
The Fifth Amendment also provides that the SMSC is not required to pay the Company a 2020 annual marketing payment. Instead, the First Amendment provides that the Company will use $1,248,343 of annual marketing payments from prior years that were unspent as of January 1, 2020 for joint marketing efforts for the mutual benefit of the Company and SMSC. The Company may also use a portion of these funds to promote, improve, or assist in the operation of horse racing at the Racetrack upon approval by the SMSC. The annual marketing payment that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $1,620,000 per year.
The purse enhancement payments to horsemen have no direct impact on the Company’s consolidated financial statements or operations. See the Management's Discussion and Analysis Section of this Form 10-K and footnote 11 of the consolidated financial statements for more detailed information on the CMA.
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Marketing
The Company’s primary market is the seven-county Minneapolis-Saint Paul metropolitan area (Hennepin, Ramsey, Anoka, Washington, Dakota, Scott, and Carver) plus the two counties to the south of the Racetrack and Card Casino (Le Sueur and Rice). The City of Shakopee, located in the southwestern portion of the metropolitan area, is one of the fastest growing communities in the region, and Scott County is one of the fastest growing counties in the country.
To support its pari-mutuel horse racing, Card Casino, and catering and events businesses, the Company conducts year-round marketing efforts to maintain the loyalty of existing customers and attract new players to the property. The Company uses radio, television, digital advertising, social media, print advertising, and direct marketing to communicate to its audiences. In addition to its regular advertising and communication program, the Company conducts numerous special promotions, handicapping contests, and poker tournaments to attract incremental visits. The Company also uses a robust player rewards and database marketing program to enhance the loyalty of its guests.
The Company continues to focus on creating a premier guest experience as the core element of its marketing efforts. This includes delivering great customer service, developing new food and beverage offerings, creating fan education programs, and providing entertainment opportunities that go beyond the traditional pari-mutuel wagering and card playing activities.
Human Capital and Team Members
Talent Management
At December 31, 2020 , the Company had 227 full-time team members and 383 part-time team members. The Company adds approximately 350 team members on a seasonal basis for live racing operations from early May until early September. During 2020, in an effort to reduce current and future costs in response to the negative impact of the COVID-19 pandemic on our business, we made difficult decisions that impacted our team members. During the temporary closures and suspension of the Company’s operations described above, all Canterbury Park team members, except for a limited number of key personnel required for basic ongoing maintenance, security, and management needs, were placed on an unpaid furlough. The Company also implemented a salary reduction for all remaining non-furloughed team members based on a combination of the team member’s salary and the team member’s responsibilities during the temporary shutdown. Upon the Company’s reopening of operations, the Company implemented a salary reduction for the management team, which was in effect through 2020. Additionally, pandemic-related restrictions on our special events and group sales operations impacted our non-gaming business for the remainder of 2020 and continues to impact us today. To address this challenge, the Company made the very difficult decision to align staffing levels with the current level of our non-gaming business. These actions included leaving vacant positions unfilled, furloughing team members, pay reductions for senior leadership, and some job eliminations.
Our success depends in large part upon our ability to attract, retain, train, lead, and motivate skilled team members. To facilitate the recruitment, development, and retention of our valuable team members, we strive to make Canterbury Park a diverse, inclusive, and safe workplace, with opportunities for our team to grow and develop. The Company offers training and development opportunities for team members to enhance leadership and communication skills. The Company also has created various internal committees, including a specific rewards and recognition committee to support our team member recognition programs. To help retain talent, we measure team member engagement, including conducting regular engagement surveys to all team members. The most recent survey was conducted in 2019 and reflected an engagement level among our team members that exceeded the average engagement levels of benchmarked companies.
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Health and Safety
During 2020, we focused significant attention on the effective handling of the COVID-19 Pandemic. We implemented new protocols and processes designed to limit the spread of the virus. These include the use of hand sanitizers and face masks, new cleaning and disinfecting regimes, the implementation of social distancing measures in restaurants, bars, gaming, recreation, and back of the house areas, and a detailed contact tracing protocol. We have made physical changes to our properties, such as the installation of thermal screening points at entrances and changes to our heating, ventilation and air conditioning (“HVAC”) systems. We have also enabled employees to work from home where possible.
Our employee guidelines and policies are founded on our cornerstones of safety, service, courtesy, cleanliness, and integrity. We are committed to equal opportunity employment and prohibit harassment or discrimination of any kind. We have adopted an open door policy to encourage an honest employer-associate relationship which includes a confidential hotline available to all employees.
Executive Officers
The executive officers of the Company, their ages and their positions with the Company at March 15, 2021 are as follows:
Name
Age
Position with Company
Randall D. Sampson
62
President, CEO, and Executive Chairman of the Board
Randy J. Dehmer
38
Vice President of Finance and CFO
Randall D. Sampson has been President and Chief Executive Officer since the formation of the Company in March 1994. Mr. Sampson was also named Executive Chairman of the Board on October 3, 2019. He has been active in horse industry associations, currently serving as Director of the Thoroughbred Racetracks of America and is a past Vice President of the Thoroughbred Racetracks of America and past President of the Minnesota Thoroughbred Association. Mr. Sampson also currently serves as a director of Communications Systems, Inc. (NASDAQ:JCS), a manufacturer of telecommunications and data communications products based in Minnetonka, Minnesota.
Randy J. Dehmer was hired as Vice President of Finance and Chief Financial Officer in May 2019. Mr. Dehmer worked for the Company from December 2007 to August 2013, most recently serving as controller from March 2012 to August 2013. Prior to rejoining the Company, he served as the financial controller for Clearfield, Inc., a public company located in the Twin Cities.
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