Business Context and Reporting Period
Company: Canterbury Park Holding Corp (CPHC)
Filing Type: Form 8-K (Current Report)
Date of Report: June 1, 2020 (Earliest event reported)
Reporting Period: Immediate events surrounding June 1, 2020, and the upcoming 2020 racing season.
The Company operates Canterbury Park Racetrack in Shakopee, Minnesota. This filing details material agreements entered into with the Shakopee Mdewakanton Sioux Community (SMSC) and the Minnesota Horsemen's Benevolent and Protection Association (MHBPA) to facilitate the 2020 live racing season amidst the COVID-19 pandemic.
Key Financial Metrics and Agreements
This filing does not contain standard financial statements (revenue, profit, cash flow, or debt balances). Instead, it outlines specific contractual financial commitments:
- 2020 Purse Enhancement: SMSC agreed to provide up to $5,620,000 for the 2020 annual purse enhancement. This is calculated based on 52 expected live racing days at $108,077 per day.
- 2020 Horse Association Payment: SMSC agreed to pay the $100,000 annual payment.
- 2020 Marketing Payment: SMSC is not required to pay the 2020 annual marketing payment.
- Use of Prior Funds: The Company will utilize $1,248,343 of unspent annual marketing payments from prior years (as of Jan 1, 2020) for joint marketing efforts.
- Future Commitments (2021-2022):
- Purse Enhancement: Remains at $7,280,000 per year.
- Marketing Payment: Remains at $1,620,000 per year.
- Security Agreement: The minimum value required under the Security Agreement is lowered to $15.0 million after SMSC pays the 2020 purse enhancement.
Material Changes Versus Prior Period
- Reduced 2020 Purse Funding: The 2020 purse enhancement ($5.62M) is lower than the standard annual commitment of $7.28M applicable to 2021 and 2022, reflecting the reduced number of racing days.
- Waived Marketing Payment: Unlike prior years, the SMSC is not making a new 2020 marketing payment; instead, the Company is utilizing unspent prior-year funds.
- Racing Day Requirements: The MHBPA waived the standard 125-day requirement for live racing in 2020. There is no minimum number of live racing days required for 2020, provided there are at least 65 days in 2021 and subsequent years.
- Security Agreement Adjustment: The minimum pledged value under the Security Agreement was adjusted downward to $15.0 million to accommodate the 2020 payment structure.
Outlook, Management Commentary, and Risks
Operational Outlook:
- Season Start: The 2020 live thoroughbred and quarter horse racing season is scheduled to begin on June 10, 2020.
- Duration: The season will feature 52 days of live racing (Monday through Thursday) between June 10 and September 16, 2020.
- Reopening: Following Minnesota Governor Tim Walz's Executive Order 70-24, the facility will allow a limited number of spectators and resume simulcast wagering on June 10. The Canterbury Park Card Casino is scheduled to reopen on June 13, 2020.
Risks and Contingencies:
- Regulatory Approval: The Fifth Amendment became effective on June 8, 2020, contingent upon Minnesota Racing Commission approval.
- Pandemic Constraints: Operations are subject to state executive orders regarding spectator limits and casino operations.
- Revenue Impact: The reduction in racing days and the waiver of the 2020 marketing payment indicate a material reduction in expected revenue and support compared to a standard operating year.
Investor Verification Checklist
- Verify the actual number of live racing days conducted in 2020 against the expected 52 days to confirm purse enhancement calculations.
- Monitor the status of the Card Casino reopening on June 13, 2020, and any subsequent changes to state Executive Order 70-24.
- Confirm the utilization of the $1,248,343 in unspent prior-year marketing funds and the approval process for their use.
- Review future filings to ensure the 2021 minimum requirement of 65 live racing days is met to maintain the agreement terms.
- Assess the impact of the reduced 2020 purse enhancement on the Company's ability to attract horses and maintain industry standing.