Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations, our financial results and financial condition, and our present business environment. This MD&A is provided as a supplement to and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (the “Notes”). Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” and “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K.
STRATEGIC OVERVIEW
Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) hosts pari-mutuel wagering on thoroughbred and quarter horse races and “unbanked” card games at its 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.
The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September, and year-round wagering on races primarily 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 operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as food and beverage, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.
In 2020, Canterbury Development continued to pursue various development opportunities begun in 2015 for its underutilized land in a project known as Canterbury Commons. These development opportunities have included contributions of land to joint ventures, three as of the end of December 2020, and sales of parcels of land to third parties that will then develop the property.
The following summarizes our financial performance for the last five years (in 000’s):
Financial Performance Summary
2020
2019
2018
2017
2016
Net Revenues
$
33,140
$
59,227
$
59,142
$
56,953
$
52,460
Operating Expenses
34,882
55,591
(4)
53,866
(3)
52,432
(2)
49,165
(1)
Gain on Transfer/Sale of Land
2,368
—
2,371
—
3,846
(Loss) Income Before Income Taxes
(189
)
3,963
7,708
4,571
7,120
Income Tax Benefit (Expense)
1,251
(1,244
)
(1,990
)
(480
)
(2,924
)
Net Income
1,062
2,718
5,718
4,091
4,196
1
During fiscal year 2016 , the Company reduced operating expenses $1,465,000 by recording a gain on insurance recoveries.
2
During fiscal year 2017 , the Company reduced operating expenses $141,000 by recording a gain on insurance recoveries.
3
During fiscal year 2018 , the Company reduced operating expenses $21,000 by recording a gain on insurance recoveries.
4
During fiscal year 2019 , the Company reduced operating expenses $211,000 by recording a $199,000 gain on insurance recoveries and $12,000 gain on sale of assets.
Our long-term strategic direction is to continue to enhance our Racetrack as a unique gaming and entertainment destination and develop the approximately 90 acres of underutilized land not needed for our Racetrack Operations.
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COVID-19 PANDEMIC
In January 2020, an outbreak of a respiratory illness caused by a new strain of coronavirus was identified. The disease has since spread rapidly across the world, causing the World Health Organization to declare the outbreak a pandemic (the “COVID-19 Pandemic”) on March 12, 2020. Since that time, governments and businesses have taken measures to limit the impact of the COVID-19 Pandemic, including the issuance of shelter-in-place orders, social distancing measures, travel bans and restrictions and business shutdowns.
On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all Card Casino, simulcast, and food and beverage operations at Canterbury Park in response to concerns about the COVID-19 Pandemic. Canterbury Park determined this voluntary suspension of activities was in the best interest of the health and safety of its guests and team members and would provide the Company an opportunity to review and update operational best practices and strategies based on what was currently known about this public health situation and future developments. On June 10, 2020, the Company reopened and resumed simulcast, live racing, and food and beverage operations. The Company also resumed table games and poker operations in the Company’s Card Casino on June 15, 2020 and July 9, 2020, respectively. These reopenings were done in compliance with Minnesota state guidelines on capacity limitations.
On November 18, 2020, Minnesota state and regulatory bodies issued an executive order requiring closure of places of public accommodation as a measure to slow the spread of COVID-19. As a result, the Company temporarily suspended all card casino, simulcast, and food and beverage operations from November 21, 2020 through January 10, 2021.
Despite a strong start to the year, the disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the year ended December 31, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain. Given the dynamic nature of these circumstances, the impact on the Company’s consolidated results of operations, cash flows and financial condition in 2020 has been material, and the Company expects it will continue to be material. The Company cannot reasonably estimate at this time when the COVID-19 Pandemic will end, or when or how quickly the current travel restrictions and capacity restrictions will be modified or cease to be necessary. As a result, it is difficult to predict the continuing and future impact on the Company’s business and the willingness of customers to spend on entertainment in venues such as ours.
The Company had no long-term debt and a $6.0 million credit line as of December 31, 2020. The Company anticipates that its existing cash balance, any cash generated from operations and availability under its credit line will provide the Company with the necessary liquidity and financial flexibility to manage through this challenging operating environment. We have taken significant actions to mitigate the effects of the COVID-19 Pandemic on our operations, including initiating workforce reductions and furloughs, suspending the Company’s quarterly cash dividend, postponing non-essential capital expenditures, reducing operating costs, and substantially reducing discretionary spending. We expect these countermeasures to partially mitigate the impact of COVID-19. As the impact of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.
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OPERATIONS REVIEW
YEAR ENDED December 31, 2020 COMPARED TO YEAR ENDED December 31, 2019
EBITDA represents earnings before interest income, income tax expense, depreciation, and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America ("GAAP"), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity. We present EBITDA as a supplemental disclosure for our Racetrack Operations because it is a widely used measure of performance of and basis for valuation of companies in the gaming industry. Other companies that provide EBITDA information may calculate EBITDA differently than we do. We also compute Adjusted EBITDA, which reflects additional adjustments to Net Income to eliminate unusual or non-recurring items, as well as items relating to our real estate development operations. For the year ended December 31, 2020 , Adjusted EBITDA excluded the loss on disposal of assets, gain on transfer of land, and depreciation and amortization related to equity investments. For the year ended December 31, 2019 , Adjusted EBITDA excluded the loss on disposal of assets, gain on insurance recoveries, and gain on sale of assets.
The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and Adjusted EBITDA (defined above), which is also a non-GAAP measure, for the years ended:
SUMMARY OF EBITDA DATA
Year Ended December 31,
2020
2019
NET INCOME
$
1,062,014
$
2,718,274
Interest income, net
(663,571
)
(329,150
)
Income tax (benefit) expense
(1,250,845
)
1,244,263
Depreciation
2,748,514
2,679,728
EBITDA
1,896,112
6,313,115
Gain on insurance recoveries
—
(198,874
)
Loss on disposal of assets
13,407
261,728
Gain on sale of assets
—
(12,141
)
Gain on transfer of land
(2,367,514
)
—
Depreciation and amortization related to equity investments
918,571
—
Interest expense related to equity investments
345,379
—
ADJUSTED EBITDA
$
805,955
$
6,363,828
Adjusted EBITDA decreased $5,560,000, or 87.3%, and decreased as a percentage of net revenues to 2.4% from 10.7% for 2020 compared to 2019 .
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REVENUES
Total net revenues for 2020 were $33,140,000, a decrease of $26,087,000, or 44.0%, compared to total net revenues of $59,227,000 for 2019 . Total pari-mutuel revenue decreased 18.9%, Card Casino revenue decreased 42.2%, food and beverage revenue decreased 73.3%, and other revenue decreased 52.4% in 2020 compared to 2019 . See below for a further discussion of our sources of revenues.
PARI-MUTUEL REVENUES
Year Ended December 31,
2020
2019
Simulcast
$
2,878,000
$
5,364,000
Live racing
723,000
2,151,000
Guest fees
2,743,000
1,203,000
Other revenue
1,635,000
1,115,000
Total Pari-Mutuel Revenue
$
7,979,000
$
9,833,000
Racing Days
Simulcast only racing days
187
298
Live and simulcast racing days
53
66
Total Number of Racing Days
240
364
Simulcast and Live Racing pari-mutuel revenues include commission and breakage revenues from on-track live and simulcast wagering. We receive guest fees from out-of-state racetracks and ADW companies for out-of-state wagering on our live races. Other revenues include source market fees paid by ADW companies for wagers made by Minnesota residents on out-of-state races and proceeds from unredeemed pari-mutuel tickets.
Total 2020 pari-mutuel revenue decreased $1,854,000, or 18.9%, compared to 2019 . Simulcast revenue decreased $2,486,000, or 46.3%, and live racing revenue decreased $1,428,000, or 66.4% in 2020 compared to 2019 . These decreases are due to the COVID-19 Pandemic described above, including the fact that these operations were closed from March 16, 2020 until June 10, 2020 and from November 21, 2020 through December 31, 2020. Guest fees increased $1,540,000, or 128.0%, in 2020 compared to 2019 primarily due to increased out of state handle as a result of racing weekdays in 2020. Other revenue increased $520,000, or 46.6% in 2020 compared to 2019 primarily due to an increase in ADW revenues.
CARD CASINO REVENUES
Year Ended December 31,
2020
2019
Poker Games
$
3,747,000
$
7,501,000
Table Games
14,307,000
23,206,000
Total Collection Revenue
18,054,000
30,707,000
Other Poker Revenue
922,000
2,300,000
Other Table Games Revenue
910,000
1,399,000
Total Card Casino Revenue
$
19,886,000
$
34,406,000
The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, referred to as “collection revenue.” Other Revenue presented above includes fees collected for the administration of tournaments and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds. Card Casino revenue represented 60.0% and 58.1% of the Company’s net revenues for the years ended December 31, 2020 and 2019 , respectively.
Total Card Casino revenue decreased $14,520,000, or 42.2%, in 2020 compared to 2019 . Poker revenue decreased $3,754,000, or 50.0%, and table games collection revenue decreased $8,899,000, or 38.3%, in 2020 compared to 2019 . These decreases are due to the COVID-19 Pandemic described above. When the Company reopened its table games operations on June 15, 2020 and poker operations on July 9, 2020, this included reduced seating at tables and capacity limitations to follow Minnesota state guidelines.
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FOOD AND BEVERAGE REVENUES
Food and beverage revenue decreased $6,522,000, or 73.3%, to $2,373,000 for the year ended December 31, 2020 compared to 2019 . The decrease is due to the COVID-19 Pandemic described above, including the fact that these operations were closed from March 16, 2020 until June 10, 2020 and from November 21, 2020 through December 31, 2020.
OTHER REVENUES
Other revenue decreased $3,190,000, or 52.4%, to $2,902,000 in 2020 compared to 2019 . The decrease is due to the COVID-19 Pandemic described above, including the fact that these operations were closed from March 16, 2020 until June 10, 2020 and from November 21, 2020 through December 31, 2020.
OPERATING EXPENSES
Total operating expenses decreased $20,709,000, or 37.3%, to $34,882,000 in 2020 , from $55,591,000 in 2019 . Total operating expenses as a percentage of net revenues increased to 105.3% in 2020 from 93.9% in 2019 .
Total purse expense decreased $2,033,000, or 29.1%, in 2020 compared to 2019 . The decrease is due to decreases in Card Casino and pari-mutuel revenues as a result of the COVID-19 Pandemic. This also resulted in a decrease in Minnesota Breeders' Fund (the "MBF") expense (shown below). As discussed in greater detail in Item 1 above, Minnesota law requires us to allocate a portion of Card Casino revenues, wagering handle on simulcast and live horse races, and ADW source market fees for future payment as purses for live horse races and other authorized uses. While most of these amounts were paid into the purse funds for thoroughbred and quarter horse races, Minnesota law requires that a portion of the amounts allocated for purses be paid into the MBF.
Minnesota Breeders’
Purse Expense
Fund Expense
2020
2019
2020
2019
Card Casino
$
2,290,000
$
4,335,000
$
254,000
$
482,000
Simulcast Racing
1,275,000
1,678,000
451,000
465,000
Live Racing
1,382,000
967,000
37,000
106,000
Total
$
4,947,000
$
6,980,000
$
742,000
$
1,053,000
Salaries and benefits expense decreased $9,601,000, or 37.6%, in 2020 compared to 2019 . The decrease is due to the COVID-19 Pandemic, which resulted in the majority of Company employees being placed on an unpaid furlough during the temporary suspension of operations. Labor costs also significantly declined upon reopen in June due to the Company's limited operations requiring significantly reduced number of personnel.
Cost of food and beverage sales decreased $2,845,000, or 69.8%, in 2020 compared to 2019 . The decrease is due to lower food and beverage revenues due to decreased attendance, primarily due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic.
Advertising and marketing costs decreased $1,775,000, or 82.5%, in 2020 compared to 2019 . The decrease is due to a reduction in advertising and marketing spend due to capacity limitations mandated across the Company’s operations as a result of the COVID-19 Pandemic.
During 2020, the Company recorded a gain on transfer of land of $2,368,000 as a result of transferring land to the Doran Canterbury II and Canterbury DBSV joint ventures.
In 2019, the Company recorded a loss on disposal of assets totaling $262,000. Included in this amount is the write-off of assets disposed of in remodeling the Card Casino. The Company also recorded a loss on disposal of assets related to development site work costs. Additionally, the Company disposed of assets related to its RV Park as a result of developing the property around the Racetrack.
In 2019, the Company recorded a gain on insurance recoveries of $199,000 as a result of insurance proceeds related to water damage incurred at the Racetrack.
Net Income for the years 2020 and 2019 was $1,062,000 and $2,718,000, respectively.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements have been prepared in conformity with U.S. GAAP and are based upon certain critical accounting policies. These policies may require management to make estimates, judgments and assumptions that we believe are reasonable based on our historical experience, contract terms, observance of known trends in our Company and the industry as a whole, and information available from other outside sources. Our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those initial estimates.
Our critical accounting policies are:
●
revenue recognition;
●
property and equipment; and
●
income tax expense.
Our significant accounting policies are more fully described in Note 2 to the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Revenue recognition - Racing revenue is generated by pari-mutuel wagering on live and simulcast racing content. Additionally, we also generate revenue through sponsorships, admissions, concessions, and publications. Our racing revenue and income are influenced by our racing calendar. Therefore, revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year. We recognize pari-mutuel revenue upon occurrence of the live race that is presented for wagering after that live race is made official by the respective state’s racing regulatory body. We recognize other operating revenue such as sponsorships, admissions, concessions, and publication revenue once delivery of the product or service has occurred. Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, referred to as “collection revenue.”
Property and Equipment - We have significant capital invested in our property and equipment, which represents approximately 49% of our total assets at December 31, 2020 . We use our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. As of December 31, 2020 , we have determined that no impairment of these assets exists.
Income taxes - We use estimates and judgments for financial reporting to determine our current tax liability and deferred taxes. In accordance with the liability method of accounting for income taxes, we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Adjustments to deferred taxes are determined based upon changes in differences between the book basis and tax basis of our assets and liabilities and measured by enacted tax rates we estimate will be applicable when these differences are expected to reverse. Changes in current tax laws, enacted tax rates or the estimated level of taxable income or non-deductible expense could change the valuation of deferred tax assets and liabilities and affect the overall effective tax rate and tax provision.
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.
29
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 industry. Under the CMA, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.
Because the Company conducted a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,380,000 per year.
Under the terms of the CMA, as amended, the SMSC made payments of $5.6 million and $7.4 million during 2020 and 2019, respectively, primarily for purse enhancements for the respective live race meets.
Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events. Under the Fifth Amendment, the SMSC was not required to pay the Company a 2020 annual marketing payment, but the Company used previously paid but unspent funds for these purposes.
As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make the following purse enhancement and marketing payments for 2021 through 2022:
Purse Enhancement Payments to
Marketing Payments to Canterbury
Year
Horsemen (1)
Park
2021
$
7,380,000
$
1,620,000
2022
7,380,000
1,620,000
1 - Includes $100,000 each year payable to various horsemen associations
The amounts received from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s consolidated statements of operations. For the year ended December 31, 2020 , the Company recorded $900,000 in other revenue and incurred $740,000 in advertising and marketing expense and $160,000 in depreciation related to the SMSC marketing payment. For the year ended December 31, 2019 , the Company recorded $1,114,000 in other revenue and incurred $888,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC marketing payment. The excess of amounts received over revenue is reflected as deferred revenue on the Company’s consolidated balance sheets.
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.
CONTINGENCIES
In accordance with an Earn Out Promissory Note given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company would be required to pay to the IMR Fund, L.P. the greater of (a) $700,000 per operating year, as defined, or (b) 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met and that the Company would be required to pay these amounts is remote. If these two conditions are met, the five minimum payments would be discounted back to their present value and the sum of those discounted payments would be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price would be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four operating years.
30
The Company entered into a CMA with the Shakopee Mdewakanton Sioux Community that became effective on June 4, 2012 and has been amended, as discussed above. The CMA contains certain covenants that, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant is remote.
The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at December 31, 2020 and as of the date of this report will not have a material impact on the Company’s consolidated financial position or results of operations.
The Company has committed to payment of statutory distributions under a $500,000 bond issued to the MRC as required under Minnesota law. The Company was not required to make any payments related to this bond in 2020 or 2019 , and there is no liability related to this bond on the balance sheet as of December 31, 2020 .
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities for 2020 was $1,677,000 as a result of net income of $1,062,000 and was increased by 2020 noncash charges from depreciation of $2,749,000, stock-based compensation expense of $469,000, stock-based employee match contribution of $371,000, deferred income taxes of $2,943,000, and loss from equity investment of $1,478,000. Cash from operating activities in 2020 was reduced by a gain on transfer of land of $2,368,000. The Company also experienced an increase in payable to horsepersons of $1,817,000 in 2020 as compared to 2019. This was partially offset by a decrease in accrued wages and payroll taxes of $1,104,000, decrease in deferred revenue of $1,046,000, and increase in income taxes receivable of $4,153,000 in 2020 as compared to 2019.
Cash provided by operating activities for 2019 was $6,738,000 as a result of net income of $2,718,000 and was increased by 2019 noncash charges from depreciation of $2,680,000, stock-based compensation expense of $235,000, stock-based employee match contribution of $689,000, and a loss on disposal of assets of $262,000. Cash from operating activities in 2019 was reduced by a gain on insurance recoveries of $199,000. The Company also experienced an increase in deferred revenue of $503,000. This was partially offset by a decline in accounts payable of $1,364,000 in 2019 as compared to 2018.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities for 2020 of $758,000 was used primarily for additions to land, buildings, and equipment, including the costs of TIF eligible public infrastructure improvements. This was partially offset by a decrease in related party receivables when an affiliate of the controlling member of the Doran Canterbury I and II joint ventures repaid the $2,940,000 promissory note in full on August 3, 2020 and repaid the $268,000 of costs for preliminary grading work on parcels of land the Company had designated for Doran Canterbury II.
Net cash used in investing activities for 2019 of $13,037,000 was used primarily for additions to land, buildings, and equipment, including the costs of TIF eligible public infrastructure improvements, and the issuance of a note receivable to a related party. This was partially offset by a decrease in notes receivable.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used by financing activities for 2020 was $374,000 and primarily consisted of $329,000 cash dividend paid to shareholders prior to the suspension of dividends by our Board of Directors on March 16, 2020.
Net cash used by financing activities for 2019 was $978,000 and primarily consisted of $1,281,000 cash dividend paid to shareholders, partially offset by proceeds from issuance of common stock of $383,000.
31
CASH AND CAPITAL RESOURCES
At December 31, 2020 , we had cash, cash equivalents, and restricted cash of $4,472,000 compared to $3,927,000 at December 31, 2019 . This $545,000 increase consisted of $1,677,000 of net cash provided by operating activities, offset by $758,000 of net cash used in investing activities and $374,000 of net cash used in financing activities.
The Company has a general credit and security agreement with a financial institution. This agreement was amended as of December 23, 2020 to extend the maturity date to February 28, 2021. The agreement was also amended as of February 28, 2021 to extend the maturity date to January 31, 2024 and increase its revolving credit line up to $10,000,000. See footnote 14 for additional information. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had borrowings of $5,866,000 under the credit line during the year ended December 31, 2020 . As of December 31, 2020 , the outstanding balance on the line of credit was $0. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout 2020 .
Our three largest sources of revenue: pari-mutuel wagering, Card Casino operations, and food and beverage, are all based on cash transactions. Consequently, we have significant inflows of cash on a daily basis. We designate cash balances that will be required to satisfy certain short-term liabilities such as progressive jackpots, the player pool, and amounts due horsemen for purses and awards as “restricted” as a separate balance sheet item.
The Company offers unbanked table games that refer to a wagering system or game where wagers “lost” or “won” by the host are accumulated into a “player pool” to enhance the total amount paid back to players in any other card game. The Company is required to return accumulated player pool funds to the players through giveaways, promotional items, prizes or by other means. The player pool liability was $576,000 and $640,000 at December 31, 2020 and 2019 , respectively. Additionally, the table games jackpot pool was $664,000 and $670,000 at December 31, 2020 and 2019 , respectively.
The Company also maintains a poker promotional pool where a portion of the poker "rake" is collected and accumulated into a promotional pool to enhance the total amount paid back to poker players. The Company is required to return accumulated poker promotional pool funds to the players through poker jackpots, giveaways, promotional items, prizes or by other means. The poker promotional pool liability was $631,000 and $175,000 at December 31, 2020 and 2019, respectively.
The Card Casino offers progressive jackpots for poker games. Amounts collected for these jackpot funds are accrued as liabilities until paid to winners. At December 31, 2020 and 2019 , accrued jackpot funds totaled $186,000 and $134,000, respectively. The MRC regulates the operation of the player pool and progressive jackpot pools. These liabilities have the potential for significant fluctuation on a daily basis.
All games in the Card Casino are played using chips. The value of chips issued and outstanding, referred to as the “outstanding chip liability,” was $253,000 and $435,000 at December 31, 2020 and 2019 , respectively. This liability has the potential for significant fluctuation on a daily basis depending upon the demand for chip redemptions and sales.
Our second largest individual operating expense item is purse expense. Pursuant to an agreement with the MHBPA, we transferred into a trust account or paid directly to the MHBPA, approximately $2,885,000 and $6,314,000 in purse funds related to thoroughbred races for 2020 and 2019 , respectively. Minnesota law provides that amounts transferred into this trust account are the property of the trust and not the Company. There were no unpaid purse fund obligations due to the MHBPA at December 31, 2020 or 2019 .
32
OFF-BALANCE SHEET ARRANGEMENTS
The Company currently has no off-balance sheet arrangements and has no intent to enter into any such agreements in the near future.
RELATED PARTY TRANSACTIONS
For a description of the nature and extent of related party transactions, see Note 13.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
In March 2014, the Company entered into a seven-year agreement with a new totalizator provider, which was extended an additional year in 2020. Pursuant to the agreement, the vendor provides totalizator equipment and related software that records and processes all wagers and calculates odds and payoffs. The amounts charged to operations for totalizator expenses for the years ended December 31, 2020 and 2019 were $176,000 and $233,000, respectively.
In August 2018, the Company entered into a Contract for Private Redevelopment with the City of Shakopee in connection with a Tax Increment Financing District (“TIF District”). The Company is obligated to construct certain public infrastructure improvements within the TIF District, and will be reimbursed by the City of Shakopee by future tax increment revenue generated from the developed property. See Note 12 for a more detailed description of the agreement.
Subsequent to December 31, 2020 , there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above. As of December 31, 2020 , we had no borrowings pursuant to our line of credit and were not party to finance lease obligations, significant purchase obligations or other long-term obligations, other than described above.
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FORWARD-LOOKING STATEMENTS
From time-to-time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:
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any short-term or long-term effect that the COVID-19 Pandemic may have on us as an entertainment venue, including reluctance from customers to visit our Racetrack or Card Casino or social distancing measures that we may voluntarily take that would limit attendance at our facilities;
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The fact that due to the COVID-19 Pandemic, our non-real estate development operations were closed from March 16, 2020 through June 9, 2020 and from November 21, 2020 through January 10, 2021, when we resumed these operations on a more limited basis in light of restrictions imposed by Minnesota regulatory bodies;
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competition from other venues offering unbanked card games or other forms of wagering;
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competition from other sports and entertainment options;
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attracting a sufficient number of horses and trainers to achieve above average field sizes;
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decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino;
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material fluctuations in attendance at the Racetrack;
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increases in the percentage of revenues allocated for purse fund payments;
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higher-than-expected expenses related to new marketing initiatives;
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the impact of wagering products and technologies introduced by competitors;
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inclement weather and other conditions that may affect our ability to conduct live racing;
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the fact that horse racing is an inherently dangerous sport and our racetrack is subject to personal injury litigation;
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any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the stability and quality of live horse racing;
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our ability to obtain, on acceptable terms, an extension to the ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which expires in 2022;
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legislative and regulatory decisions and changes, including decision or actions related to sports betting that would adversely affect our betting environment;
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the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of specific public infrastructure improvements within the TIF District, and the funding that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;
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the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partners Doran Companies and Greystone Construction to construct, and profitably operate our development projects;
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greater-than-anticipated expenses or lower-than-anticipated return on the development of our underutilized land;
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the fact the public infrastructure improvements that we are making pursuant to the Redevelopment Agreement with the City of Shakopee together with improvements we are making to our parking facilities may disrupt traffic flow in a manner that discourages customers from visiting our facilities, thereby affecting our revenue and profitability;
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payments and amount of future dividends is subject to Board of Director discretion and to various risks and uncertainties;
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increases in compensation and employee benefit costs;
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the general health of the gaming sector; and
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other factors that are beyond our ability to control or predict.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 3.05(e) of Regulation S-K, Canterbury Park Holding Company is not required to provide the information requested by this Item as it qualifies as a smaller reporting company.
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