Dover Motorsports (DVD) 10-K2020 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2020

Commission file number     001-11929

Dover Motorsports, Inc.

(Exact name of registrant as specified in its charter)

1131 North DuPont Highway, Dover, Delaware 19901

(Address of principal executive offices)

(302) 883-6500

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of common stock held by non-affiliates of the registrant was $23,263,564 as of June 30, 2020 (the last day of our most recently completed second quarter).

As of February 22, 2021, the number of shares of each class of the registrant's common stock outstanding is as follows:

Common Stock - 17,951,616 shares Class A Common Stock - 18,509,975 shares

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement in connection with the Annual Meeting of Stockholders to be held April 28, 2021 are incorporated by reference into Part III, Items 10 through 14 of this report.

Part I

References in this document to “we,” “us” and “our” mean Dover Motorsports, Inc. and/or its wholly owned subsidiaries, as appropriate.

Dover Motorsports, Inc. is a public holding company that is a marketer and promoter of motorsports entertainment in the United States. Through our subsidiaries, we own and operate Dover International Speedway^® in Dover, Delaware and Nashville Superspeedway^® near Nashville, Tennessee. Our Dover facility was scheduled to promote the following six events during 2020, all of which were under the auspices of the premier sanctioning body in motorsports - the National Association for Stock Car Auto Racing (“NASCAR”):

Due to the impacts of the COVID-19 pandemic, our May NASCAR weekend was postponed and the three events originally scheduled for that weekend were held in combination with our already scheduled August NASCAR weekend events. On July 25, 2020, Delaware state officials notified us that due to public safety and health concerns, they would not approve our request to host a limited number of fans at our August NASCAR weekend. As a result, all of our 2020 events were held with no fans in attendance during the third quarter of 2020.

In contrast, in 2019 and 2018 we held six events, all with fans in attendance. A NASCAR Cup Series event, a NASCAR Xfinity Series event and a NASCAR Gander RV & Outdoors Truck Series event were held at Dover International Speedway during the second quarter of 2019 and 2018. A NASCAR Cup Series event, a NASCAR Xfinity Series event and a NASCAR ARCA Menards Series East event were held at Dover International Speedway during the fourth quarter of 2019 and 2018.

In 2021, we are scheduled to once again promote these six events, with three events at Dover International Speedway in May and three events at Nashville Superspeedway in June. We have not promoted a major motorsports event at our Nashville Superspeedway since 2011. On June 3, 2020, we announced that we would be moving one of our NASCAR Cup Series events historically held at Dover International Speedway to Nashville Superspeedway beginning in 2021. We entered into a four-year sanction agreement to promote a NASCAR Cup Series event in Nashville for the 2021 to 2024 racing seasons. We also entered into a one-year sanction agreement to promote a NASCAR Cup Series event at Dover International Speedway for the 2021 season. Total revenues from these event weekends were approximately 98% of total revenues in 2020, and approximately 96% in 2019 and 2018.

The 2020 global outbreak of COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020 and has resulted in travel restrictions, business closures, government-imposed stay-at-home orders and the implementation of “social distancing,” limitations on the size of gatherings, cancellations of events and certain other measures to prevent the further spread of the virus. The continued spread of COVID-19 has also led to unprecedented global economic disruption and volatility in financial markets, a rise in unemployment levels, decreases in consumer confidence levels and spending, and an overall worsening of U.S. economic conditions. It remains highly uncertain how long the pandemic and the resulting economic challenges and restrictions on day-to-day life will last. New or renewed restrictions may be implemented in response to the virus spread rate in the United States and evolving conditions, including overall uncertainty about the timing of widespread availability of vaccines. For those reasons, we are unable to predict the long-term impact of the pandemic on our business at this time. The extent to which COVID-19 impacts our results will depend on future developments, but the continued spread of COVID-19 and associated economic impacts could have a material adverse effect on our future financial condition, liquidity, results of operations and cash flows. In particular, if restrictions related to COVID-19 limit our ability to host fans at our scheduled 2021 events, our admissions and event-related revenues will be adversely impacted.

We hosted the Firefly Music Festival (“Firefly”) on our property in Dover, Delaware for eight consecutive years and it was scheduled to return on June 18-21, 2020. Due to the COVID-19 pandemic, the 2020 event was cancelled. The inaugural three day festival with 40 musical acts was held in July 2012 and the 2019 event was held in June 2019 with approximately 120 musical acts. The promoter of the Firefly event is Goldenvoice, a company of AEG Presents, LLC, a subsidiary of Anschutz Entertainment Group, Inc.  AEG Presents is one of the world’s largest presenters of live music and entertainment events. Our amended agreement grants them two 5-year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure our property.  In addition to the facility rental fee, we also receive a percentage of the concession sales we manage at the events. There has been no decision yet regarding whether Firefly will be held in 2021. If Firefly is not held in 2021, due to government-imposed restrictions related to the COVID-19 pandemic or other reasons, our business will be adversely affected.

We generate revenues primarily from the following sources:

We began our motorsports operations in 1969 in Dover, Delaware. Our predecessor, Dover Downs, Inc., was also engaged in harness horse racing operations and later ran our other gaming operations. As a result of several restructurings, our operations were segregated into two main operating subsidiaries - Dover International Speedway, Inc., incorporated in 1994, encompassed our motorsports operations, and Dover Downs, Inc., incorporated in 1967, conducted our gaming operations.

Effective March 31, 2002, we spun-off our gaming business which was then owned by our subsidiary, Dover Downs Gaming & Entertainment, Inc. (“Gaming”).  On a tax-free basis, we made a pro rata distribution of all of the capital stock of Gaming to our stockholders.  Our continuing operations subsequent to the spin-off consist solely of our motorsports activities and property rentals.

On August 17, 2017, we entered into an agreement with an entity owned by Panattoni Development Company (the “buyer”) relative to the sale of approximately 147 acres of land at a purchase price of $35,000 per acre. On March 2, 2018, we closed on the sale of the property with proceeds, less closing costs, of $4,945,000. Net proceeds after taxes were approximately $4,150,000 resulting in a gain of $2,512,000. On September 1, 2017, we also awarded to the buyer a three year option for approximately 88 additional acres at a purchase price of $55,000 per acre. That option agreement has been amended twice since: first, on February 9, 2018, to extend its term and to add additional acreage; and second, on June 25, 2019, in connection with the buyer’s exercise of its option on two parcels, we adjusted the acreage and further extended the term of the option on a third parcel.  The buyer paid to us $500,000 for the extension of this option until March 1, 2022, and this non-refundable payment would be credited to the purchase price at the closing of that option parcel. On July 26, 2019, the buyer closed on the sale of the first two parcels, comprising approximately 133 acres, which yielded to us proceeds, less closing costs, of $6,397,000.  Net proceeds after taxes were approximately $5,314,000 resulting in a gain of $4,186,000. On July 29, 2020, the buyer closed on the sale of the third parcel of approximately 97 acres at our Nashville property. Proceeds from the sale, less closing costs, were $6,460,000. Net proceeds after taxes were approximately $5,290,000 resulting in a gain of $4,843,000. The buyer’s deposit previously paid to us was credited to the purchase price. In November 2020, we entered into an agreement to sell an additional 350 acres of land at our Nashville facility for $14,355,000. The buyer paid us $500,000, which is non-refundable except in the event of a default by us that is not cured within the applicable cure period, and which would be credited to the purchase price at the closing of the sale of that parcel. The transaction is expected to be consummated on or before May 31, 2021. Assuming this option is exercised, the remaining Nashville Superspeedway property will consist of approximately 650 acres. None of the acreage sold or under agreement extends to the land on which our superspeedway is sited.

On February 28, 2019, we entered into an agreement to sell 7.63 acres of land at our Nashville facility for proceeds, less closing costs, of $267,000. The sale closed in the first quarter of 2019 and resulted in a gain of $139,000, which we have reported as gain on sale of land in our consolidated statement of earnings and comprehensive income.

During September 2018, we entered into negotiations to sell the last remaining parcel of land we owned near St. Louis. The sale resulted in a loss of $99,000, which we reported as loss on sale of land in our consolidated statement of earnings and comprehensive income. The sale closed in the first quarter of 2019 with proceeds, less closing costs, of $531,000.

Dover International Speedway

We have promoted NASCAR-sanctioned racing events for 52 consecutive years at Dover International Speedway and for many years have promoted six NASCAR-sanctioned events at the facility annually. Two races are in the NASCAR Cup Series professional stock car racing circuit, two races are in the NASCAR Xfinity Series racing circuit, one race is in the NASCAR Gander RV & Outdoors Truck Series racing circuit, and one race is in the NASCAR ARCA Menards Series East racing circuit. Each of the NASCAR Xfinity Series events, the Gander RV & Outdoors Truck Series event and the ARCA Menards Series East event at Dover International Speedway are conducted on the days before a NASCAR Cup Series event.

Dover International Speedway, widely known as the “Monster Mile^®,” is a high-banked, one-mile, concrete superspeedway with permanent grandstand seating, after our current seating capacity adjustments, of approximately 54,000. Unlike some superspeedways, substantially all grandstand and skybox seats offer an unobstructed view of the entire track. The concrete racing surface made Dover International Speedway the first concrete superspeedway (one mile or greater in length) that conducts NASCAR Cup Series events. The superspeedway facility also features the Monster Bridge^®. The climate controlled bridge spans across the width of the superspeedway at a height of 29 feet and houses 50-luxury seats, a refreshment bar and other amenities. The Monster Bridge is the only one of its kind in the motorsports industry.

Nashville Superspeedway

In April 2001, we opened Nashville Superspeedway – a motorsports complex approximately 35 miles from downtown Nashville in Wilson County, Tennessee. The facility was closed after the 2011 season, but will re-open for NASCAR Cup Series racing in 2021. The 1.33-mile concrete superspeedway has 25,000 permanent grandstand seats with an infrastructure in place for future expansion. The superspeedway, which includes lights to allow for nighttime racing, is the largest concrete track in NASCAR.

Agreements with NASCAR

Our previous sanction agreements with NASCAR were for the 2016-2020 seasons and NASCAR had communicated that the industry would be going back to annual sanction agreements. Pursuant to the typical sanction agreement, NASCAR grants its sanction to a promoter, such as Dover International Speedway, to organize, promote and hold a particular competition. The promoter sells tickets to the competition, sells or arranges for the sale of merchandise and concessions, and sells advertising, sponsorships and hospitality services. NASCAR arranges for the drivers, conducts the competition, including the right to require alterations to the promoter’s facility and the right to approve or disapprove any advertising or sponsorship of the promoter. NASCAR also has exclusive rights to exploit live broadcast and certain broadcast and intellectual property rights related to the competition, and exclusive rights to sponsorship and promotional rights relative to the series to which a particular competition belongs. The promoter must pay the sanction fee and purse monies and receives a share of the live broadcast revenue contracted for by NASCAR. The promoter is responsible for the condition of the facility, for compliance with laws, for control of the public, for fire and medical equipment and personnel, for security, for insurance and for providing facilities and services required by NASCAR officials and the live broadcast personnel.

Dover International Speedway, Inc. has entered into a sanction agreement with NASCAR pursuant to which it will organize and promote one NASCAR Cup Series event in 2021. On June 3, 2020, we announced that we would be moving one of our NASCAR Cup Series events historically held at Dover International Speedway to Nashville Superspeedway beginning in 2021. We entered into a four-year sanction agreement to promote a NASCAR Cup Series event in Nashville for the 2021 to 2024 racing seasons. Our business is substantially dependent on these two agreements.  

Under the terms of our sanction agreements, NASCAR retains 10% of the gross broadcast rights fees allocated to each NASCAR-sanctioned event as a component of its sanction fee. The remaining 90% is recorded as broadcasting revenue. The event promoter is required to pay 25% of the gross broadcast rights fees to the event as part of the awards to the competitors, which we record as operating expenses.

Competition

Our racing events compete with other racing events sanctioned by various racing bodies and with other sports and recreational events scheduled on or around the same dates. Racing events sanctioned by different organizations are sometimes held on the same dates at different tracks. The quality of the competition, type of racing event, caliber of the event, sight lines, ticket pricing, location and customer conveniences and amenities, among other things, differentiate the motorsports facilities. We also compete with improving and expanding media coverage and content by network and cable broadcasters.

Seasonality

We derive substantially all of our total revenues from television broadcast rights, admissions, and other event-related revenue attributable to two major motorsports event weekends. Our 2020 events were all held in August. Our 2019 and 2018 events were held in the spring and fall. Our 2021 major events will be held in May and June. As a result, our business is highly seasonal.

Employees

As of December 31, 2020, we had 52 full-time employees and 8 part-time employees. We engage temporary personnel to assist during our motorsports racing season. We believe that we enjoy a good relationship with our employees.

Intellectual Property 

We have various registered and common law trademark rights, including, but not limited to, “Dover,” “Dover Motorsports,” “Dover International Speedway,” “Nashville Speedway,” “Nashville Superspeedway,” “Monster Mile,” “Miles the Monster,” “Velocity,” “Monster Bridge,” “The Most Exciting Seat in Sports!,” and “Concrete Monster.” We also have limited rights to use the names and logos of NASCAR, various sponsors, drivers and other businesses in connection with promoting our events and certain merchandising programs.  Due to the value of our intellectual property rights for promotional purposes, it is our intention to vigorously protect these rights, through litigation, if necessary.

Available Information

We file annual, quarterly and current reports, information statements and other information with the United States Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

Internet Address

We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our Internet website is www.dovermotorsports.com. We provide a link on our website, under Investor Relations, to our filings with the SEC, including our annual report on Form 10-K, proxy statement, Section 16 reports, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports.

In addition to historical information, this report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, possible acquisitions, market forces, corporate strategies, consumer preferences, contractual commitments, legal matters, capital requirements and other matters. Documents incorporated by reference into this report may also contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ substantially from the anticipated results or other expectations expressed in our forward-looking statements. When words and expressions such as: “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely” or similar words or expressions are used, as well as phrases such as “in our view,” “there can be no assurance” or “there is no way to anticipate with certainty,” forward-looking statements may be involved.

In the section that follows below, in cautionary statements made elsewhere in this report, and in other filings we have made with the SEC, we list important factors that could cause our actual results to differ from our expectations. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors described below and other factors set forth in or incorporated by reference in this report.

These factors and cautionary statements apply to all future forward-looking statements we make. Many of these factors are beyond our ability to control or predict. Do not put undue reliance on forward-looking statements or project any future results based on such statements or on present or prior earnings levels.

Additional information concerning these, or other factors, which could cause the actual results to differ materially from those in our forward-looking statements is contained from time to time in our other SEC filings. Copies of those filings are available from us and/or the SEC.

Risk Factors Related to Our Business and Industry

The COVID-19 Pandemic and the Public Health Measures and Governmental Actions Taken in Response Could Continue to Adversely Affect the Motorsports Industry and Our Business

The 2020 global outbreak of COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. In response, public health and government officials imposed or recommended certain measures, including social distancing, limitations on the size of gatherings, and cancellations of events. As a result of such measures, the Firefly Music Festival was cancelled and NASCAR postponed our May 2020 race weekend until August 2020. Our August NASCAR weekend was held without fans in attendance due to state restrictions on events, which adversely affected our admissions and event-related revenues. Even if attendance restrictions are lifted and future events are held as scheduled, fans may choose not to attend the events due to continued concerns over health and safety or due to the pandemic’s negative economic effects. The continued spread of COVID-19 has also led to unprecedented global economic disruption and volatility in financial markets, a rise in unemployment levels, decreases in consumer confidence levels and spending, and an overall worsening of U.S. economic conditions. It remains highly uncertain how long the pandemic and the resulting economic challenges and restrictions on day-to-day life will last. New or renewed restrictions may be implemented in response to the virus spread rate in the United States and evolving conditions, including overall uncertainty about the timing of widespread availability of vaccines. We cannot predict the ultimate scope, duration and impact of the COVID-19 pandemic, as its magnitude is subject to many factors, both known and unknown, many of which are likely to be outside our control. The pandemic and actions taken in response have affected the entire motorsports industry and have adversely affected, and may in the future materially adversely affect, our business, financial condition, liquidity and results of operations.

Our Relationships With And The Success Of NASCAR Is Vital To Our Success In Motorsports

Our continued success in motorsports is dependent upon the success of NASCAR and our ability to secure favorable contracts with and maintain a good working relationship with them.  NASCAR issues and awards sanctioned events and their issuance depends, in large part, on maintaining good working relationships with NASCAR.  By awarding a sanctioned event or a series of sanctioned events, NASCAR does not warrant, nor are they responsible for, the financial success of any sanctioned event.  Our success is directly tied to our ability to negotiate favorable terms to our sanction agreements, including the amount of the sanction fee and purse, and our ability to continue to derive economic benefits from such agreements, such as our share of live broadcast revenues. Dover International Speedway, Inc. has entered into a one-year sanction agreement to promote a NASCAR Cup Series event at Dover International Speedway for the 2021 season. Nashville Speedway, USA, Inc. has entered into a four-year sanction agreement to promote a NASCAR Cup Series event at Nashville Superspeedway for the 2021 to 2024 racing seasons.

Our ability to obtain sanctioned events in the future and to negotiate favorable terms to our sanction agreements and the success of NASCAR in attracting drivers and teams, signing series sponsors and negotiating favorable television and/or radio broadcast rights is dependent on many factors which are largely outside of our control.  As our success depends on the terms of our sanction agreements and the success of each event or series that we are promoting, a material change in the terms of a sanction agreement or the loss of one or more sanctioned events, a material adverse effect on NASCAR, such as a decline in the attendance at (or the popularity of) NASCAR events, the loss or defection of top drivers, the loss of significant series sponsors, or the failure to obtain favorable broadcast coverage or to properly advertise the event or series could result in a reduction in our revenues from live broadcast coverage, admissions, luxury suite rentals, sponsorships, hospitality, concessions and merchandise, which could have a material adverse effect on our business, financial condition and results of operations. In 2020, due to state restrictions imposed in response to the COVID-19 pandemic, our August NASCAR weekend was held without fans in attendance, which adversely affected our admissions and event-related revenues. Even if attendance restrictions are lifted and future events are held as scheduled, fans may choose not to attend the events due to continued concerns over health and safety or due to the pandemic’s negative economic effects, which would result in reduced admissions and event-related revenues.

Changes To Media Rights Revenues Could Adversely Affect Us

Broadcast revenues that are paid to us by NASCAR represent the largest component of our revenues and earnings, and particularly in light of our dependence on those revenues and earnings due to the reduction in admissions and event-related revenues resulting from the continuing effects of the COVID-19 pandemic, any adverse changes to such revenues could adversely impact our results. NASCAR’s broadcast agreements have yielded us significant cash flow. In 2013, NASCAR announced it reached a ten-year extension of its broadcast rights with FOX Sports Media Group (“FOX”). This agreement extends through the 2024 NASCAR season and allows FOX to retain the television rights to 16 NASCAR Cup Series races, 14 NASCAR Xfinity Series events and the entire NASCAR Gander RV & Outdoors Truck Series season. Additionally in 2013, NASCAR announced it reached a ten-year agreement with NBC Sports Group granting exclusive rights through 2024 to 20 NASCAR Cup Series races, 19 NASCAR Xfinity Series events, select NASCAR Regional & Touring Series events and other live content which began in 2015.  Material changes in the broadcast industry or the financial value of broadcast agreements, material changes in the ratings for NASCAR events or in the NASCAR race schedule, or material changes in the perception of fans or sponsors due to such factors could have a material adverse effect on our revenues and financial results.

We Rely On Sponsorship Contracts To Generate Revenues

We receive a portion of our annual revenues from sponsorship agreements, including the sponsorship of our various events and venues, such as “title,” “official product” and “promotional partner” sponsorships, billboards, signage and skyboxes. We are continuously in negotiations with existing sponsors and actively seeking new sponsors as there is significant competition for sponsorships. Some of our events may not secure a “title” sponsor every year, may not secure a sufficient number of sponsorships on favorable terms, or may not secure sponsorships sufficiently enough in advance of an event for maximum impact. Loss of our existing title sponsors or other major sponsorship agreements or failure to secure sponsorship agreements in the future on favorable terms could have a material adverse effect on our business, financial condition and results of operations.

Our Motorsports Events Face Intense Competition For Attendance, Television Viewership And Sponsorship

We compete with other auto speedways for the patronage of motor racing spectators as well as for sponsorships. Moreover, racing events sanctioned by different organizations are sometimes held on the same dates at different tracks. The quality of the competition, type of racing event, caliber of the event, sight lines, ticket pricing, location and customer conveniences and amenities, among other things, distinguish the motorsports facilities. In addition, all of our events compete with other sports and recreational events scheduled on the same dates. As a result, our revenues and operations are affected not only by our ability to compete in the motorsports promotion market, but also by the availability of alternative spectator sports events, forms of entertainment, changing consumer preferences and opportunities for corporations to acquire sponsorships.

Risks Related to our Financial Condition and Stock

General Market And Economic Conditions, Including Consumer And Corporate Spending and Sentiment, Could Negatively Affect Our Financial Results

Our financial results depend significantly upon a number of factors relating to discretionary consumer and corporate spending and sentiment, including economic conditions affecting disposable consumer income and corporate budgets. The combination of stagnant wages, unemployed and underemployed individuals among our fan base (particularly in light of the ongoing COVID-19 pandemic), escalating health care costs, rising interest rates, stock market volatility, changes in (together with political uncertainty concerning) governmental policies relative to spending, taxation and regulation, among other factors, can adversely affect discretionary consumer and corporate spending and sentiment.

Other factors that can affect consumer and corporate spending and sentiment include severe weather, hurricanes, flooding, earthquakes and other natural disasters, elevated terrorism alerts, terrorist attacks, military actions, air travel concerns, outbreaks of disease (such as the COVID-19 pandemic), and geopolitical events, as well as various industry and other business conditions - including the popularity of NASCAR events and NASCAR drivers, an aging fan base for motorsports events, and an ever increasing number of sporting and entertainment options that compete for discretionary spending. Such factors or incidents, even if not directly impacting us, can disrupt or otherwise adversely impact the financial results, spending sentiment and interest of our present or potential customers and sponsors.  There can be no assurance that consumer and corporate spending and sentiment will not be further adversely impacted by current or unforeseen factors, thereby possibly having a material adverse impact on our future operating results and growth.

The Sales Tax And Property Tax Revenues To Service The Revenue Bonds For Infrastructure Improvements At Nashville May Be Inadequate

In September 1999, the Sports Authority of the County of Wilson (Tennessee) issued $25,900,000 in revenue bonds to build local infrastructure improvements which benefit Nashville Superspeedway, of which $12,300,000 was outstanding at December 31, 2020. Debt service on the bonds is payable solely from sales taxes and incremental property taxes generated from the facility. As of December 31, 2020 and 2019, $217,000 and $637,000, respectively, was available in the sales and incremental property tax fund maintained by the Sports Authority to pay the remaining principal and interest due under the bonds. During 2020, we paid $945,000 into the sales and incremental property tax fund and $1,365,000 was deducted from the fund for debt service. These bonds are direct obligations of the Sports Authority and therefore have historically not been required to be recorded on our consolidated balance sheet. In the event the sales taxes and incremental property taxes (“applicable taxes”) are insufficient to cover the payment of principal and interest on the bonds, we would become responsible for the difference. We are exposed to fluctuations in interest rates for these bonds. In the event we were unable to make the payments, they would be made under a $12,506,000 irrevocable direct-pay letter of credit issued by our bank group. We would be responsible to reimburse the banks for any drawings made under the letter of credit. Such an event could have a material adverse effect on our business, financial condition and results of operations and compliance with debt covenants.

Prior to our recent decision to reopen Nashville Superspeedway in 2021, we had not promoted motorsports events at that facility since 2011. In 2011, we recorded a $2,250,000 provision for contingent obligation reflecting the present value of the estimated portion of the revenue bonds debt service that may not be covered by the projected sales and incremental property taxes from the facility. Due to changing interest rates and future property and sales tax assumptions, the provision for contingent obligation decreased by $171,000 in 2020 and increased by $1,005,000 and $424,000 in 2019 and 2018, respectively, and is $3,218,000 at December 31, 2020. See Item 8. NOTE 1 – Business Operations and Item 8. NOTE 11 – Commitments and Contingencies of the consolidated financial statements included elsewhere in this document for further discussion.

The Seasonality Of Our Motorsports Events Increases The Variability Of Quarterly Earnings

Our business has been, and is expected to remain, seasonal given that it depends on our outdoor event weekends. We have historically derived substantially all of our total revenues from admissions, event-related and broadcasting revenue attributable to our NASCAR-sanctioned events at Dover International Speedway in Dover, Delaware. In 2021, one of those event weekends will be held at Nashville Superspeedway. For 2021, all six NASCAR racing events are scheduled to be held in the second quarter. For 2020, all six NASCAR racing events were held in the third quarter. For 2019 and 2018, three NASCAR racing events were held in the second quarter and three in the fourth quarter. As a result, quarterly earnings may vary significantly.

We Are Subject To Changing Governmental Regulations And Legal Standards That Could Increase Our Expenses

Our motorsports facilities are on large expanses of property which we own. Laws and regulations governing the use and development of real estate may delay or complicate any improvements we choose to make and/or increase the costs of any improvements or our costs of operating.

If it is determined that damage to persons or property or contamination of the environment has been caused or exacerbated by the operation or conduct of our business or by pollutants, substances, contaminants or wastes used, generated or disposed of by us, or if pollutants, substances, contaminants or wastes are found on property currently or previously owned or operated by us, we may be held liable for such damage and may be required to pay the cost of investigation and/or remediation of such contamination or any related damage.

State and local laws relating to the protection of the environment also can include noise abatement laws that may be applicable to our racing events. In addition certain laws and regulations, including the Americans with Disabilities Act and the Occupational Safety and Health Act are constantly evolving. Changes in the provisions or application of federal, state or local environmental, land use or other laws, regulations or requirements to our facilities or operations, or the discovery of previously unknown conditions, could require us to make additional material expenditures to remediate or attain compliance.

Regulations governing the use and development of real estate may prevent us from acquiring or developing facilities, substantially delay or complicate the process of improving facilities, and/or increase the costs of any of such activities.

Bad Weather Can Have An Adverse Financial Impact On Our Motorsports Events

We market and promote outdoor motorsports events. Weather conditions, or even the forecast of poor weather, can affect sales of tickets, concessions and merchandise at these events. Although historically we have sold many tickets well in advance of the outdoor events, and these tickets are generally issued on a non-refundable basis, poor weather may adversely affect additional ticket sales and concessions and merchandise sales, which could have an adverse effect on our business, financial condition and results of operations.

We do not currently maintain weather-related insurance for major events. Due to the importance of clear visibility and safe driving conditions to motorsports racing events, outdoor racing events may be significantly affected by weather patterns and seasonal weather changes. Any unanticipated weather changes could impact our ability to stage events. This could have a material adverse effect on our business, financial condition and results of operations.

Postponement And/Or Cancellation Of Major Events Could Adversely Affect Us

If one of our events is postponed because of weather or other reasons such as, for example, the COVID-19 pandemic or the general postponement of all major sporting events in this country following the September 11, 2001 terrorist attacks, we could incur increased expenses associated with conducting the rescheduled event, as well as possible decreased revenues from tickets, concessions and merchandise at the rescheduled event. If an event is cancelled, we could incur the expenses associated with preparing to conduct the event as well as lose the revenues, including live broadcast revenues associated with the event.

If a cancelled event is part of a NASCAR series, we could experience a reduction in the amount of money received from television revenues for all of our NASCAR-sanctioned events in the series that experienced the cancellation. This would occur if, as a result of the cancellation, and without regard to whether the cancelled event was scheduled for one of our facilities, NASCAR experienced a reduction in broadcast revenues greater than the amount scheduled to be paid to the promoter of the cancelled event.

Due To Our Concentrated Stock Ownership, Stockholders May Have No Effective Voice In Our Management

We have elected to be treated as a “controlled corporation” as defined by New York Stock Exchange (“NYSE”) Rule 303A. We are a controlled corporation because a single person, Henry B. Tippie, the Chairman of our Board of Directors, controls in excess of fifty percent of our voting power. This means that he has the ability to determine the outcome of the election of directors at our annual meetings and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power. Such a concentration of voting power could also have the effect of delaying or preventing a third party from acquiring us at a premium. In addition, as a controlled corporation, we are not required to comply with certain NYSE rules.

General Risk Factors

Our Success Depends On The Availability And Performance Of Key Personnel

Our continued success depends upon the availability and performance of our senior management team which possesses unique and extensive industry knowledge and experience. Our inability to retain and attract key employees in the future could have a negative effect on our operations and business plans.

Our Insurance May Not Be Adequate To Cover Catastrophic Incidents

We maintain insurance policies that provide coverage within limits that are sufficient, in the opinion of management, to protect us from material financial loss incurred in the ordinary course of business. We also purchase special event insurance for motorsports events to protect against race-related liability. However, there can be no assurance that this insurance will be adequate at all times and in all circumstances. If we are held liable for damages beyond the scope of our insurance coverage, including punitive damages, our business, financial condition and results of operations could be materially and adversely affected.

Applicable Safety and Security Rules and Regulations Have Increased and May Continue to Increase Our Expenses

In addition, sanctioning bodies could impose more stringent rules and regulations for safety, security and operational activities. Such regulations have included, for example, the installation of new retaining walls at our facilities, which have increased our capital expenditures, and increased security procedures which have increased our operational expenses.

We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements. Given these risks and uncertainties, stockholders should not overly rely or attach undue weight to our forward-looking statements as an indication of our actual future results.

We have not received any written comments that were issued within 180 days before December 31, 2020, the end of the fiscal year covered by this report, from the SEC staff regarding our periodic or current reports under the Securities Exchange Act of 1934 that remain unresolved.

Dover International Speedway

Dover International Speedway is located in Dover, Delaware, on approximately 770 acres of land we own. Prior to the spin-off of Gaming from our company in 2002, both companies shared certain real property in Dover, Delaware. At the time of the spin-off, some of this real property was transferred to Gaming to ensure that the real property holdings of each company were aligned with its past uses and future business needs. During its harness racing season, Gaming has historically used the 5/8-mile harness racing track that is located on our property and is on the inside of our one-mile motorsports superspeedway. In order to continue this historic use, we granted a perpetual easement to the harness track to Gaming at the time of the spin-off. This perpetual easement allows Gaming to have exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period. The easement requires that Gaming maintain the harness track but does not require the payment of any rent.

Various easements and agreements relative to access, utilities and parking have also been entered into between us and Gaming relative to our respective Dover, Delaware facilities. We pay rent to Gaming for the lease of our principal executive office space.

Nashville Superspeedway

Nashville Superspeedway is located on approximately 1,000 acres of land we own in Wilson County and Rutherford County, Tennessee. The facility is approximately 35 miles from downtown Nashville.

We are a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial condition or cash flows.

Not applicable.

Information About Our Executive Officers

See Part III, Item 10 of this Annual Report on Form 10-K for information about our executive officers.

Part II

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “DVD.” Our Class A common stock is not publicly traded but is freely convertible on a one-for-one basis into common stock at any time at the option of the holder thereof. As of February 22, 2021, there were 17,951,616 shares of common stock and 18,509,975 shares of Class A common stock outstanding. As of such date, there were 695 holders of record for common stock and 11 holders of record for Class A common stock.

On July 28, 2004, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our outstanding common stock. The purchases may be made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time. We made no purchases during the fourth quarter of 2020. At December 31, 2020, we had remaining repurchase authority of 384,809 shares.

Not applicable.

The following discussion is based upon and should be read together with the consolidated financial statements and notes thereto included elsewhere in this document.

Executive Summary

We are a marketer and promoter of motorsports entertainment in the United States. Through our subsidiaries, we own and operate Dover International Speedway^® in Dover, Delaware and Nashville Superspeedway^® near Nashville, Tennessee. Historically we hold all our events under the auspices of the premier sanctioning body in motorsports - the National Association for Stock Car Auto Racing (“NASCAR”). We have also hosted the Firefly Music Festival at our Dover facility for eight consecutive years prior to the cancellation of the festival in 2020 due to COVID-19. As described further below, we have made substantial land sales in recent years.

We classify our revenues as admissions, event-related, broadcasting and other. “Admissions” revenue includes ticket sales for our events. “Event-related” revenue includes amounts received from sponsorship fees; luxury suite rentals; hospitality tent rentals and catering; concessions and vendor commissions for the right to sell concessions and souvenirs at our events; sales of programs; track rentals; broadcasting rights other than domestic television broadcasting revenue, and other event-related revenues. Additionally, event-related revenue includes amounts received for the use of our property and a portion of the concession sales we manage from the Firefly Music Festival. “Broadcasting” revenue includes rights fees obtained for domestic television broadcasts of events held at Dover International Speedway.

Revenues pertaining to specific events are deferred until the event is held. Concession and souvenir revenues are recorded at the time of sale. Revenues and related expenses from barter transactions in which we provide sponsorship packages in exchange for goods or services are recorded at fair value. Barter transactions accounted for $213,000, $538,000, and $685,000 of total revenues for the years ended December 31, 2020, 2019 and 2018, respectively.

Certain direct expenses pertaining to specific events, including prize and point fund monies and sanction fees paid to NASCAR, and other expenses associated with our racing events are deferred until the event is held, at which point they are expensed. The cost of advertising is expensed as incurred.

Our operating results for 2020 reflect the impact of the COVID-19 pandemic, including the government-imposed restrictions that prevented any fans from attending our 2020 events and the cancellation of the Firefly Music Festival. It remains highly uncertain how long the pandemic and the resulting economic challenges and restrictions on day-to-day life, including limitations on the size of gatherings and other measures to prevent the further spread of the virus, will last. Management believes that our admissions and event-related revenues may continue to be negatively impacted if consumer and corporate spending continues to be impacted by the pandemic or if local officials continue to limit attendance at major events. Given the uncertainty surrounding the pandemic and its effects, our reported financial information may not be indicative of our future operating results or our future financial condition. Changes in governmental taxing, regulatory, spending and other policies could also significantly impact consumer spending, economic recovery and our future results.

Much of our total revenues are generated under our sanction agreements, and the amount of much future revenues under such agreements are already contracted under NASCAR’s long-term television broadcasting rights agreements. As discussed further below in “Liquidity and Capital Resources,” NASCAR is operating under an expanded multi-year, multi-platform broadcasting rights agreement through the year 2024. Management believes the attractive demographics surrounding motorsports continue to provide opportunities for increasing our number of longer-term sponsorship partners.

Results of Operations

Year Ended December 31, 2020 vs. Year Ended December 31, 2019

Due to the impacts of the COVID-19 pandemic, our NASCAR weekend originally scheduled for May of 2020 was held in conjunction with our scheduled August NASCAR weekend. Pursuant to restrictions imposed by state officials, none of the events had fans in attendance. As a result, we had no admissions revenue in 2020 compared to $4,968,000 in 2019.

Event-related revenue was $2,885,000 in 2020 compared to $6,713,000 in 2019. The $3,828,000 decrease was due to lower corporate sponsorships, luxury suite rentals, hospitality, merchandise, concession and parking revenues from the combination of the two race weekends and the holding of the events without fans. Additionally, the pandemic caused the cancellation of the 2020 Firefly Music Festival.

Broadcasting revenue increased to $35,646,000 in 2020 as compared to $34,267,000 in 2019 due to contractual increases in NASCAR’s broadcasting rights agreement.

Operating and marketing expenses were $25,221,000 in 2020 compared to $29,241,000 in 2019. Higher purse and sanction fees for our NASCAR event weekends were offset by decreases in most other expenses that resulted from not having fans present at our events.

General and administrative expenses increased to $7,676,000 in 2020 from $7,524,000 in 2019. The increase was primarily due to higher employee related costs associated with the reopening of our Nashville Superspeedway facility, which began in the second half of 2020.

Depreciation expense decreased to $3,046,000 in 2020 from $4,353,000 in 2019. The decrease was primarily due to shortening the useful lives of certain track related assets that were retired at the end of the 2019 racing season as a result of our planned reduction of grandstand seating at our Dover facility. We recorded $1,172,000 of accelerated depreciation expense on these assets in 2019.

Costs to remove long-lived assets in 2020 and 2019 related to the removal and disposal of grandstand seating at our Dover facility.

Gain on sale of land in 2020 relates to the sale of approximately 97 acres of land at our Nashville facility. Gain on sale of land in 2019 relates to the sale of approximately 141 acres of land at our Nashville facility.

Net interest expense was $35,000 in 2020 compared to net interest income of $22,000 in 2019 and resulted from lower interest income from lower rates on invested cash in 2020.

Benefit for contingent obligation was $171,000 in 2020 compared to a provision of $1,005,000 in 2019. The benefit in 2020 was primarily from projected sales tax collections as a result of our four-year sanction agreement with NASCAR for Nashville Superspeedway. The 2019 provision was primarily the result of lower estimated property taxes and a decrease in the discount rate.

Other income was $182,000 in 2020 compared with $269,000 in 2019 and primarily represents gains on equity investments and pension benefits in both periods.

Earnings before income taxes were $7,420,000 in 2020 compared to $7,286,000 in 2019. Excluding the gain on sale of land and costs to remove long-lived assets in both years, and the accelerated depreciation in 2019, our adjusted earnings before income taxes were $2,918,000 in 2020 compared to $5,303,000 in 2019.

Our effective income tax rate was a 0.8% benefit in 2020 compared to a 24.5% expense in 2019. The 2020 tax benefit was impacted by the reversal of $1,916,000 of the valuation allowance for Tennessee state income tax assets as a result of the reopening of the Nashville Superspeedway and the land purchase and sale agreement executed in November 2020.

Net earnings were $7,482,000 in 2020 compared to $5,500,000 in 2019. Excluding the gain on sale of land and costs to remove long-lived assets in both years, the accelerated depreciation in 2019, and the valuation allowance reversal in 2020, our adjusted net earnings were $1,986,000 in 2020 compared to $3,772,000 in 2019.

The above financial information is presented using other than generally accepted accounting principles ("non-GAAP") and is reconciled to comparable information presented using GAAP. Non-GAAP adjusted earnings before income taxes is derived by adjusting amounts determined in accordance with GAAP for the gain on sale of land, accelerated depreciation and cost to remove long-lived assets. Non-GAAP adjusted net earnings is derived by adjusting amounts determined in accordance with GAAP (1) for the gain on sale of land including the tax effect using our federal statutory rate as we had available state net operating losses, (2) for the accelerated depreciation and cost to remove long-lived assets including the tax effect using our federal and state statutory tax rates, and (3) for the reversal of the valuation allowance for state income tax assets, net of federal taxes at our statutory rate. We believe such non-GAAP information is useful and meaningful to investors, and is used by investors and us to assess core operations. This non-GAAP financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to net earnings which is determined in accordance with GAAP.

Year Ended December 31, 2019 vs. Year Ended December 31, 2018

Admissions revenue was $4,968,000 in 2019 as compared to $5,694,000 in 2018. The $726,000 decrease was related to lower attendance at our 2019 NASCAR event weekends at Dover International Speedway. In recent years, NASCAR attendance has been challenged from the retirement of top drivers and the general trend of declining attendance at many live sporting events.

Event-related revenue was $6,713,000 in 2019 as compared to $8,410,000 in 2018. The $1,697,000 decrease was primarily due to lower sponsorship revenues, the hiring of a company to manage our concession sales so that we now receive a percentage of the sales, and lower luxury suite rentals and hospitality at our 2019 NASCAR event weekends and lower revenues from the 2019 Firefly Music Festival. We believe inclement weather negatively impacted our spring NASCAR event weekend event-related revenue in 2019.

Broadcasting revenue increased to $34,267,000 in 2019 as compared to $32,905,000 in 2018 due to contractual increases in NASCAR’s broadcasting rights agreement.

Operating and marketing expenses were $29,241,000 in 2019 as compared to $29,277,000 in 2018. Higher purse and sanction fees for our NASCAR event weekends were offset by decreases in other expenses.

General and administrative expenses increased to $7,524,000 in 2019 from $7,310,000 in 2018. The increase was primarily due to higher employee related costs, insurance expense and real estate taxes.

Depreciation expense increased to $4,353,000 in 2019 from $3,285,000 in 2018. The increase was due to shortening the useful lives of certain track related assets that were retired at the end of the 2019 racing season as a result of our planned reduction of grandstand seating. We recorded $1,172,000 of accelerated depreciation expense on these assets in 2019.

Costs to remove long-lived assets in 2019 related to the removal and disposal of grandstand seating at our Dover facility.

Gain on sale of land in 2019 and 2018 relates to the sales of approximately 141 and 147 acres of land at our Nashville facility, respectively. The 2018 gain was partially offset by a loss on the sale of a parcel of land we owned near St. Louis, Missouri.

Net interest income was $22,000 in 2019 compared to net interest expense of $62,000 in 2018 and resulted from lower average outstanding borrowings and interest income on invested cash in 2019.

Provision for contingent obligation was $1,005,000 in 2019 compared to $424,000 in 2018 as a result of lower estimated future property taxes and a decrease in the discount rate.

Other income of $269,000 in 2019 primarily represents gains on equity investments of $161,000 and pension benefits of $62,000. Other expense of $4,000 in 2018 primarily represents losses on equity investments of $90,000 partially offset by pension benefits of $85,000.

Earnings before income taxes were $7,286,000 in 2019 compared to $9,067,000 in 2018. Excluding the gain on sale of land in both years, and the accelerated depreciation and cost to remove long-lived assets in 2019, our adjusted earnings before income taxes were $5,303,000 in 2019 compared to $6,654,000 in 2018.

Net earnings were $5,500,000 in 2019 compared to $6,889,000 in 2018. Excluding the gain on sale of land in both years and the accelerated depreciation and cost to remove long-lived assets in 2019, our adjusted net earnings were $3,772,000 in 2019 compared to $4,981,000 in 2018.

The above financial information is presented using other than generally accepted accounting principles ("non-GAAP") and is reconciled to comparable information presented using GAAP. Non-GAAP adjusted earnings before income taxes is derived by adjusting amounts determined in accordance with GAAP for the gain on sale of land, accelerated depreciation and cost to remove long-lived assets. Non-GAAP adjusted net earnings is derived by adjusting amounts determined in accordance with GAAP (1) for the gain on sale of land including the tax effect using our federal statutory rate as we had available state net operating losses, and (2) for the accelerated depreciation and cost to remove long-lived assets including the tax effect using our federal and state statutory tax rates. We believe such non-GAAP information is useful and meaningful to investors, and is used by investors and us to assess core operations. This non-GAAP financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to net earnings which is determined in accordance with GAAP.

Liquidity and Capital Resources

Our operations and cash flows from operating activities are seasonal in nature.   

Net cash provided by operating activities was $3,193,000 in 2020 compared to $6,775,000 in 2019.  The decrease was primarily from lower operating earnings in 2020 compared to 2019 as a result of the impacts of the COVID-19 pandemic. In 2020, our May NASCAR weekend at our Dover facility was postponed and run in conjunction with our August NASCAR weekend in Dover. As a result of restrictions imposed by state officials, all events were held without fans in attendance. Additionally, the pandemic forced the cancellation of the Firefly Music Festival in 2020.

Net cash provided by investing activities was $4,438,000 in 2020 compared to $1,267,000 in 2019.  Capital expenditures of $1,998,000 in 2020 related primarily to costs associated with the reopening of Nashville Superspeedway. Capital expenditures of $6,446,000 in 2019 related primarily to costs associated with replacing our NASCAR Cup Series garage, and to a lesser extent, other improvements at our Dover facility.  In July 2020, we closed on the sale of approximately 97 acres of land at our Nashville facility for proceeds of $6,460,000, net of closing costs. The buyer had previously paid to us a $500,000 deposit in June 2019 that was credited to the purchase price. In November 2020, we entered into an agreement to sell an additional 350 acres of land at our Nashville facility. The buyer paid to us a $500,000 non-refundable deposit for that transaction, as described further below. In 2019, we closed on the sale of approximately 141 acres of land at our Nashville Superspeedway facility for proceeds of $6,664,000, net of closing costs.  Also, in the first quarter of 2019, we closed on the sale of a parcel of land we owned near St. Louis for proceeds of $531,000, net of closing costs. 

Net cash used in financing activities was $2,640,000 in 2020 compared to $4,416,000 in 2019.  During 2020, we borrowed $3,880,000 from our revolving line of credit, all of which was repaid during the same period.  During 2019, we borrowed $4,180,000 from our revolving line of credit, all of which was repaid during the same period.  We paid $2,546,000 and $3,642,000 in cash dividends during 2020 and 2019, respectively.  During 2019, we purchased and retired 315,840 shares of our outstanding common stock for $643,000 from the open market.  Additionally, we purchased and retired 50,572 and 48,457 shares of our outstanding common stock for $94,000 and $96,000 during 2020 and 2019, respectively, from employees in connection with the vesting of restricted stock awards under our stock incentive plan. As a result of amending our credit agreement in September 2019, we paid $35,000 in bank fees.

We, along with our wholly owned subsidiaries Dover International Speedway, Inc. and Nashville Speedway, USA, Inc., as co-borrowers, have a $30,000,000 credit agreement with a bank group. On September 24, 2019, we modified the credit agreement to extend the maturity date to January 1, 2022 and reduce the total available borrowings under the facility from $35,000,000 to $30,000,000. Interest is based upon LIBOR plus a margin that varies between 125 and 175 basis points depending on the leverage ratio. At December 31, 2020 and 2019, there were no borrowings outstanding under the credit facility. The credit facility contains certain covenants including maximum funded debt to earnings before interest, taxes, depreciation and amortization (“leverage ratio”) and a minimum fixed charge coverage ratio. Material adverse changes in our results of operations, including those that could potentially result from the continued effects of the COVID-19 pandemic, could impact our ability to maintain financial ratios necessary to satisfy these requirements. In addition, the credit agreement includes a material adverse change clause. The credit facility also provides that if we default under any other loan agreement that would be a default under this facility. At December 31, 2020, we were in compliance with the terms of the credit facility. The credit facility provides for seasonal funding needs, capital improvements, letter of credit requirements and other general corporate purposes. After consideration of stand-by letters of credit outstanding, the remaining maximum borrowings available pursuant to the credit facility were $17,494,000 at December 31, 2020. On February 25, 2021, we modified the credit agreement to: (1) extend the maturity date to September 1, 2024; (2) to reduce the total available borrowings under the facility from $30,000,000 to $25,000,000; and (3) to replace the fixed charge coverage ratio with an interest coverage ratio. We expect to be in compliance with the financial covenants, and all other covenants, for all measurement periods during the next twelve months.

On August 17, 2017, we entered into an agreement with an entity owned by Panattoni Development Company (the “buyer”) relative to the sale of approximately 147 acres of land at a purchase price of $35,000 per acre. On March 2, 2018, we closed on the sale of the property with proceeds, less closing costs, of $4,945,000. Net proceeds after taxes were approximately $4,150,000 resulting in a gain of $2,512,000. On September 1, 2017, we also awarded to the buyer a three year option for approximately 88 additional acres at a purchase price of $55,000 per acre. That option agreement has been amended twice since: first, on February 9, 2018, to extend its term and to add additional acreage; and second, on June 25, 2019, in connection with the buyer’s exercise of its option on two parcels, we adjusted the acreage and further extended the term of the option on a third parcel.  The buyer paid to us $500,000 for the extension of this option until March 1, 2022, and this non-refundable payment would be credited to the purchase price at the closing of that option parcel. On July 26, 2019, the buyer closed on the sale of the first two parcels, comprising approximately 133 acres, which yielded to us proceeds, less closing costs, of $6,397,000.  Net proceeds after taxes were approximately $5,314,000 resulting in a gain of $4,186,000. On July 29, 2020, the buyer closed on the sale of the third parcel of approximately 97 acres at our Nashville property. Proceeds from the sale, less closing costs, were $6,460,000. Net proceeds after taxes were approximately $5,290,000 resulting in a gain of $4,843,000. The buyer’s deposit previously paid to us was credited to the purchase price. In November 2020, we entered into an agreement to sell an additional 350 acres of land at our Nashville facility for $14,355,000. The buyer paid us $500,000, which is non-refundable except in the event of a default by us that is not cured within the applicable cure period, and which would be credited to the purchase price at the closing of the sale of that parcel. The transaction is expected to be consummated on or before May 31, 2021. Assuming this option is exercised, the remaining Nashville Superspeedway property will consist of approximately 650 acres. None of the acreage sold or under agreement extends to the land on which our superspeedway is sited.

On February 28, 2019, we entered into an agreement to sell 7.63 acres of land at our Nashville facility for proceeds, less closing costs, of $267,000. The sale closed in the first quarter of 2019 and resulted in a gain of $139,000, which we have reported as gain on sale of land in our consolidated statement of earnings and comprehensive income.

During September 2018, we entered into negotiations to sell the last remaining parcel of land we owned near St. Louis. The sale resulted in a loss of $99,000, which we reported as loss on sale of land in our consolidated statement of earnings and comprehensive income. The sale closed in the first quarter of 2019 with proceeds, less closing costs, of $531,000.

We promoted six racing events in 2020 and 2019 (five national series events and one regional series event), all of which were sanctioned by NASCAR and held at our Dover International Speedway facility. Due to the effects of the pandemic, the six 2020 races were all held on one weekend in August without fans in attendance.

We have not promoted a major motorsports event at our Nashville Superspeedway since 2011.  On June 3, 2020, we announced that we would be moving one of our NASCAR Cup series events historically held at Dover International Speedway to Nashville Superspeedway beginning in 2021. We entered into a four-year sanction agreement with NASCAR to promote a NASCAR Cup Series event in Nashville for the 2021 through 2024 racing seasons and a one-year sanction agreement to promote a NASCAR Cup Series event in Dover for the 2021 season.

Broadcasting revenues continue to be a significant long-term revenue source for our business. Management believes this long-term contracted revenue helps stabilize our financial strength, earnings and cash flows. Also, NASCAR ratings can impact attendance at our events and sponsorship opportunities. A substantial portion of our profits in recent years has resulted from television revenues received from NASCAR under its agreements with various television networks, which is expected to continue for the foreseeable future. Our share of these television broadcast revenues and purse and sanction fees are fixed under our NASCAR sanction agreements through the year 2021 for our Dover facility and through 2024 for our Nashville facility. We are obligated to conduct events in the manner stipulated under the terms and conditions of these sanction agreements.

NASCAR is operating under a ten-year, multi-platform agreement with FOX Sports Media Group (“FOX”) for the broadcasting and digital rights to 16 NASCAR Cup Series races, 14 Xfinity Series races and the entire Gander RV & Outdoors Truck Series (along with practice and qualifying) from 2015 through 2024. The agreement includes “TV Everywhere” rights that allow live-streaming of all FOX races, before and after race coverage, in-progress and finished race highlights, and replays of FOX-televised races to a Fox Sports-affiliated website which began in 2013. The agreement also allows the re-telecasting of races on a FOX network and via video-on-demand for 24 hours and other ancillary programming, including a nightly NASCAR news and information show and weekend at-track shows. NASCAR and FOX Deportes, the number one US Latino sports network, have teamed up to provide our sport’s most expansive Spanish-language broadcast offering ever with coverage of 15 NASCAR Cup Series races which started in 2013.

NASCAR also operates under a ten-year comprehensive agreement with NBC Sports Group granting NBCUniversal ("NBC") exclusive rights to 20 NASCAR Cup Series races, 19 NASCAR Xfinity Series events, select NASCAR Regional & Touring Series events and other live content which began in 2015.  Further, NBC has been granted Spanish-language rights, certain video-on-demand rights and exclusive 'TV Everywhere' rights for its NASCAR Cup Series and NASCAR Xfinity Series events.

Looking forward, our 2021 sanction agreements with NASCAR contain an increase of approximately 3.9 percent in media rights fees for each sanctioned event conducted, and provide a specific percentage of media rights fees to be paid to competitors. The sanction agreements also provide for an increase in sanction fees and non-media rights related prize and point fund monies (to be paid to competitors) of approximately 4.6 percent.

We hosted the Firefly Music Festival (“Firefly”) on our property in Dover, Delaware for eight consecutive years and it was scheduled to return on June 18-21, 2020. Due to the COVID-19 pandemic, the 2020 event was cancelled. The inaugural three day festival with 40 musical acts was held in July 2012 and the 2019 event was held in June 2019 with approximately 120 musical acts. The promoter of the Firefly event is Goldenvoice, a company of AEG Presents, LLC, a subsidiary of Anschutz Entertainment Group, Inc.  AEG Presents is one of the world’s largest presenters of live music and entertainment events. Our amended agreement grants them two 5-year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure our property.  In addition to the facility rental fee, we also receive a percentage of the concession sales we manage at the events. There has been no decision yet regarding whether Firefly will be held in 2021. If Firefly is not held in 2021, due to government-imposed restrictions related to the COVID-19 pandemic or other reasons, our business will be adversely affected.

We expect that our net cash flows from operating activities and funds available from our credit facility will be sufficient to provide for our working capital needs, capital spending requirements, stock repurchases, as well as any cash dividends our Board of Directors may declare at least through the next twelve months and also provide for our long-term liquidity. Based on current business conditions, we expect to spend approximately $11,000,000 on capital expenditures during 2021. We have no minimum required pension contributions for 2021, but will consider making additional contributions. Given the uncertainty surrounding the COVID-19 pandemic and its continuing effects, we are unable to predict the extent of the impacts the pandemic may have on our liquidity and our financial results in the future, but those impacts may include a material reduction in revenue or income from operations.

Contractual Obligations

At December 31, 2020, we had the following contractual obligations and other commercial commitments:

^(a)         In September 1999, the Sports Authority of the County of Wilson (Tennessee) issued $25,900,000 in Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, to acquire, construct and develop certain public infrastructure improvements which benefit Nashville Superspeedway, of which $12,300,000 was outstanding at December 31, 2020. Annual principal payments on these bonds range from $1,100,000 in September 2021 to $1,600,000 in 2029 and are payable solely from sales taxes and incremental property taxes generated from the facility. These bonds are direct obligations of the Sports Authority, and therefore, have historically not been required to be recorded on our consolidated balance sheet. If the applicable taxes are insufficient for the payment of principal and interest on the bonds, we would become responsible for the difference. In the event we were unable to make the payments, they would be made pursuant to a $12,506,000 irrevocable direct-pay letter of credit issued by our bank group. We are exposed to fluctuations in interest rates for these bonds. The amounts above represent our best estimate of the amounts we will be required to pay per period.

As of December 31, 2020 and 2019, $217,000 and $637,000, respectively, was available in the sales and incremental property tax fund maintained by the Sports Authority to pay the remaining principal and interest due under the bonds. During 2020, we paid $945,000 into the sales and incremental property tax fund and $1,365,000 was deducted from the fund for debt service. If we fail to maintain the letter of credit that secures the bonds or we allow an uncured event of default to exist under our reimbursement agreement relative to the letter of credit, the bonds would be immediately redeemable.

Prior to our recent decision to reopen Nashville Superspeedway in 2021, we had not promoted motorsports events in Nashville since 2011. In 2011, we recorded a $2,250,000 provision for contingent obligation reflecting the present value of the estimated portion of the revenue bonds debt service that may not be covered by the projected sales and incremental property taxes from the facility. Due to changing interest rates and future property and sales tax assumptions, the provision for contingent obligation decreased by $171,000 in 2020 and increased by $1,005,000 and $424,000 in 2019 and 2018, respectively, and is $3,218,000 at December 31, 2020. See Item 8. NOTE 1 – Business Operations and Item 8. NOTE 11 – Commitments and Contingencies of the consolidated financial statements included elsewhere in this document for further discussion.

^(b)         On June 3, 2020, we announced that we would be reopening Nashville Superspeedway beginning in 2021. Certain construction contracts associated with preparing the facility to reopen were executed as of December 31, 2020.

Related Party Transactions

See Item 8. NOTE 10 – Related Party Transactions of the consolidated financial statements included elsewhere in this document.

Critical Accounting Policies

The accounting policies described below are those we consider critical in preparing our consolidated financial statements. These policies include significant estimates made by management using information available at the time the estimates are made. As described below, these estimates could change materially if different information or assumptions were used.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2020, our valuation allowance on state net operating loss carryforwards net of federal income taxes was $363,000, which decreased by $2,099,000 in 2020. These state net operating losses are related to our Nashville facility that has not produced taxable income from operations and has not hosted events since 2011. Valuation allowances had historically fully reserved the state net operating loss carryforwards, net of federal tax benefit. In 2020, we announced the reopening of Nashville Superspeedway and signed a four-year sanction agreement to host a NASCAR Cup Series race at the facility. In November 2020, we entered into an agreement to sell land at our Nashville facility in 2021. As a result, we reversed a portion of the previously recorded valuation allowance on the state net operating loss carryforwards. We have considered ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we were to determine that we would be able to realize all or a portion of these deferred tax assets, an adjustment to the valuation allowance would increase earnings in the period such determination was made. Likewise, should we determine that we would not be able to realize all or a portion of our remaining deferred tax assets in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination was made.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided for financial reporting purposes using the straight-line method over estimated useful lives ranging from 3 to 10 years for furniture, fixtures and equipment and up to 40 years for facilities.  These estimates require assumptions that are believed to be reasonable.  We perform reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.

Accrued Pension Cost

On June 15, 2011, we decided to freeze participation and benefit accruals under our defined benefit pension plans. The freeze was effective July 31, 2011. The benefits provided by our defined benefit pension plans are based on years of service and employee’s remuneration through July 31, 2011. Accrued pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for the discount rate, expected long-term rate of return on assets and mortality. Changes in these estimates would impact the amounts that we record in our consolidated financial statements.

Recent Accounting Pronouncements

See Item 8. NOTE 2 – Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this document for a full description of recent accounting pronouncements that affect us.

Factors That May Affect Operating Results; Forward-Looking Statements

This report and the documents incorporated by reference may contain forward-looking statements. In Item 1A of this report, we disclose the important factors that could cause our actual results to differ from our expectations.

Not applicable.

Our consolidated financial statements and the Report of Independent Registered Public Accounting Firm included in this report are shown on the Index to Consolidated Financial Statements on page 26.

None.

Our management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information included in this Form 10-K. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and reflect the effects of certain estimates and judgments made by management.

Our management also is responsible for establishing and maintaining a system of internal controls designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management’s authorization. The system is regularly monitored by direct management review and by internal auditors who conduct an extensive program of audits throughout our organization. The Director of Internal Audit reports directly to the Audit Committee of our Board of Directors. We have confidence in our financial reporting, the underlying system of internal controls, and our people, who are objective in their responsibilities and operate under our Code of Business Conduct and with the highest level of ethical standards. These standards are a key element of our control system.

The Audit Committee of our Board of Directors, which is comprised entirely of independent directors, has direct and private access to and meets regularly with management, our internal auditors and our independent registered public accounting firm to review accounting, reporting, auditing and internal control matters.

Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedure may deteriorate.

(a)       Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that relevant, material information is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

(b)       Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this annual report.

(c)       Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

Part III

Except as presented below, biographical information relating to our directors and executive officers, information regarding our audit committee financial experts and information on Section 16(a) Beneficial Ownership Reporting Compliance called for by this Item 10 are incorporated by reference to our Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on April 28, 2021.

We have a Code of Business Conduct applicable to all of our employees, including our Chief Executive Officer and Chief Financial Officer. We also have a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to all directors and executive officers. Copies of these Codes and other corporate governance documents are available on our website at www.dovermotorsports.com under the heading, Investor Relations. We will post on our website any amendments to, or waivers from, these Codes as required by law.

Executive Officers of the Registrant. As of December 31, 2020, our executive officers were:

Our Chairman of the Board, Henry B. Tippie, is a non-employee director and, therefore, not an executive officer. Mr. Tippie has served as Chairman of the Board for 21 years and prior to that served as Vice Chairman of the Board.

Denis McGlynn has served as our President and Chief Executive Officer for 41 years.

Michael A. Tatoian joined us as Executive Vice President in January 2007. Mr. Tatoian has more than 30 years of experience in professional sports ownership, management and operations. He served as Chief Executive Officer and Managing Partner of Victory Sports Group, LLC, where he oversaw the development and management of professional sports organizations, including minor league baseball, minor league hockey and a NASCAR Nationwide Series team. Mr. Tatoian also served as Chief Operating Officer of United Sports Ventures, Inc., an umbrella sports company that owned and operated eight minor league teams.

Timothy R. Horne has been Sr. Vice President-Finance and Chief Financial Officer since April 2008. Mr. Horne was also the Chief Financial Officer of Dover Motorsports, Inc. from 1996 until its 2002 spin-off of Gaming.

Thomas Wintermantel has been Treasurer and Assistant Secretary since July 2002 and became Secretary in May 2020. Previously, Mr. Wintermantel was the Financial Vice President and Treasurer of John W. Rollins & Associates, Financial Vice President of Rollins Jamaica, Ltd. and President and Director of the John W. Rollins Foundation.

The information called for by this Item 11 is incorporated by reference to our Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on April 28, 2021.

The information called for by this Item 12 is incorporated by reference to our Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on April 28, 2021.

Equity Compensation Plan Information

We have a stock incentive plan which provides for the grant of up to 2,000,000 shares of common stock to our officers and key employees through stock options and/or awards valued in whole or in part by reference to our common stock, such as nonvested restricted stock awards. Refer to NOTE 8 – Stockholders’ Equity of the consolidated financial statements included elsewhere in this document for further discussion. Securities authorized for issuance under equity compensation plans at December 31, 2020 are as follows:

The information called for by this Item 13 is incorporated by reference to our Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on April 28, 2021.

The information called for by this Item 14 is incorporated by reference to our Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on April 28, 2021.

Part IV

* Denotes management contract or compensatory plan or arrangement.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

The Directors of the registrant (listed below) executed a power of attorney appointing Denis McGlynn and Timothy R. Horne their attorneys-in-fact, empowering them to sign this report on their behalf.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Dover Motorsports, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Dover Motorsports, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Pension Plans

As discussed in Note 7 to the consolidated financial statements, the Company has recorded an aggregate defined benefit pension obligation of $17,028,000 as of December 31, 2020, which exceeded the fair value of pension plan assets of $14,715,000 , resulting in an unfunded status of pension plans of $2,313,000. The benefit obligations and pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for the discount rate and expected long-term rate of return on assets.

We identified the assessment of the valuation of the unfunded status of pension plans as a critical audit matter, as it involves especially challenging and complex auditor judgment. Specialized skills and knowledge were required to evaluate the actuarial assumptions, including specifically the discount rate and the expected long-term rate of return on assets. In addition, a high degree of auditor judgment was required to evaluate the discount rate and long-term rate of return on plan assets as small changes in these assumptions would have an impact on the valuation of the unfunded status of the pension plans.

The following are the primary procedures we performed to address this critical audit matter. We involved actuarial professionals with specialized skills and knowledge, who assisted in:

DOVER MOTORSPORTS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

DOVER MOTORSPORTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

DOVER MOTORSPORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

The Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

DOVER MOTORSPORTS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Business Operations

References in this document to “we,” “us” and “our” mean Dover Motorsports, Inc. and/or its wholly owned subsidiaries, as appropriate.

Dover Motorsports, Inc. is a public holding company that is a marketer and promoter of motorsports entertainment in the United States. Through our subsidiaries, we own and operate Dover International Speedway^® in Dover, Delaware and Nashville Superspeedway^® near Nashville, Tennessee. Our Dover facility was scheduled to promote the following six events during 2020, all of which were under the auspices of the premier sanctioning body in motorsports - the National Association for Stock Car Auto Racing (“NASCAR”):

Due to the impacts of the COVID-19 pandemic, our May NASCAR weekend was postponed and the three events originally scheduled for that weekend were held in combination with our already scheduled August NASCAR weekend events. On July 25, 2020, Delaware state officials notified us that due to public safety and health concerns, they would not approve our request to host a limited number of fans at our August NASCAR weekend. As a result, all of our 2020 events were held with no fans in attendance during the third quarter of 2020.

In contrast, in 2019 and 2018 we held six events, all with fans in attendance. A NASCAR Cup Series event, a NASCAR Xfinity Series event and a NASCAR Gander RV & Outdoors Truck Series event were held at Dover International Speedway during the second quarter of 2019 and 2018. A NASCAR Cup Series event, a NASCAR Xfinity Series event and a NASCAR ARCA Menards Series East event were held at Dover International Speedway during the fourth quarter of 2019 and 2018.

In 2021, we are scheduled to once again promote these six events, with three events at Dover International Speedway in May and three events at Nashville Superspeedway in June. We have not promoted a major motorsports event at our Nashville Superspeedway since 2011.   On June 3, 2020, we announced that we would be moving one of our NASCAR Cup Series events historically held at Dover International Speedway to Nashville Superspeedway beginning in 2021. We entered into a four-year sanction agreement to promote a NASCAR Cup Series event in Nashville for the 2021 to 2024 racing seasons. We also entered into a one-year sanction agreement to promote a NASCAR Cup Series event at Dover International Speedway for the 2021 season. Total revenues from these event weekends were approximately 98% of total revenues in 2020, and approximately 96% in 2019 and 2018.

The 2020 global outbreak of COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020 and has resulted in travel restrictions, business closures, government-imposed stay-at-home orders and the implementation of “social distancing,” limitations on the size of gatherings, cancellations of events and certain other measures to prevent the further spread of the virus. The continued spread of COVID-19 has also led to unprecedented global economic disruption and volatility in financial markets, a rise in unemployment levels, decreases in consumer confidence levels and spending, and an overall worsening of U.S. economic conditions. It remains highly uncertain how long the pandemic and the resulting economic challenges and restrictions on day-to-day life will last. New or renewed restrictions may be implemented in response to the virus spread rate in the United States and evolving conditions, including overall uncertainty about the timing of widespread availability of vaccines. For those reasons, we are unable to predict the long-term impact of the pandemic on our business at this time. The extent to which COVID-19 impacts our results will depend on future developments, but the continued spread of COVID-19 and associated economic impacts could have a material adverse effect on our future financial condition, liquidity, results of operations and cash flows. In particular, if restrictions related to COVID-19 limit our ability to host fans at our scheduled 2021 events, our admissions and event-related revenues will be adversely impacted.

We hosted the Firefly Music Festival (“Firefly”) on our property in Dover, Delaware for eight consecutive years and it was scheduled to return on June 18-21, 2020. Due to the COVID-19 pandemic, the 2020 event was cancelled. The inaugural three day festival with 40 musical acts was held in July 2012 and the 2019 event was held in June 2019 with approximately 120 musical acts. The promoter of the Firefly event is Goldenvoice, a company of AEG Presents, LLC, a subsidiary of Anschutz Entertainment Group, Inc.  AEG Presents is one of the world’s largest presenters of live music and entertainment events. Our amended agreement grants them two 5-year options to extend our facility rental agreement through 2032 in exchange for a rental commitment to secure our property.  In addition to the facility rental fee, we also receive a percentage of the concession sales we manage at the events. There has been no decision yet regarding whether Firefly will be held in 2021. If Firefly is not held in 2021, due to government-imposed restrictions related to the COVID-19 pandemic or other reasons, our business will be adversely affected.

On August 17, 2017, we entered into an agreement with an entity owned by Panattoni Development Company (the “buyer”) relative to the sale of approximately 147 acres of land at our Nashville property at a purchase price of $35,000 per acre. On March 2, 2018, we closed on the sale of the property with proceeds, less closing costs, of $4,945,000. Net proceeds after taxes were approximately $4,150,000 resulting in a gain of $2,512,000. On September 1, 2017, we also awarded to the buyer a three year option for approximately 88 additional acres at a purchase price of $55,000 per acre. That option agreement has been amended twice since: first, on February 9, 2018, to extend its term and to add additional acreage; and second, on June 25, 2019, in connection with the buyer’s exercise of its option on two parcels, we adjusted the acreage and further extended the term of the option on a third parcel.  The buyer paid to us $500,000 for the extension of this option until March 1, 2022, and this non-refundable payment would be credited to the purchase price at the closing of that option parcel. On July 26, 2019, the buyer closed on the sale of the first two parcels, comprising approximately 133 acres, which yielded to us proceeds, less closing costs, of $6,397,000.  Net proceeds after taxes were approximately $5,314,000 resulting in a gain of $4,186,000. On July 29, 2020, the buyer closed on the sale of the third parcel of approximately 97 acres at our Nashville property. Proceeds from the sale, less closing costs, were $6,460,000. Net proceeds after taxes were approximately $5,290,000 resulting in a gain of $4,843,000. The buyer’s deposit previously paid to us was credited to the purchase price. In November 2020, we entered into an agreement to sell an additional 350 acres of land at our Nashville facility for $14,355,000. The buyer paid us $500,000, which is non-refundable except in the event of a default by us that is not cured within the applicable cure period, and which would be credited to the purchase price at the closing of the sale of that parcel. The transaction is expected to be consummated on or before May 31, 2021. At December 31, 2020, the carrying value of the land is classified as assets held for sale in our consolidated balance sheet. Assuming this option is exercised, the remaining Nashville Superspeedway property will consist of approximately 650 acres. None of the acreage sold or under agreement extends to the land on which our superspeedway is sited.

On February 28, 2019, we entered into an agreement to sell 7.63 acres of land at our Nashville facility for proceeds, less closing costs, of $267,000. The sale closed in the first quarter of 2019 and resulted in a gain of $139,000, which we have reported as gain on sale of land in our consolidated statement of earnings.

During September 2018, we entered into negotiations to sell the last remaining parcel of land we owned near St. Louis. The sale resulted in a loss of $99,000, which we reported as loss on sale of land in our consolidated statements of earnings. The sale closed in the first quarter of 2019 with proceeds, less closing costs, of $531,000.

NOTE 2 – Summary of Significant Accounting Policies

Basis of consolidation and presentation—The accompanying consolidated financial statements include the accounts of Dover Motorsports, Inc. and our wholly owned subsidiaries. Intercompany transactions and balances have been eliminated.

Investments—Investments, which consist of mutual funds, are reported at fair-value in other assets in our consolidated balance sheets. Changes in fair value are reported in other income (expense), net on the consolidated statements of earnings and comprehensive income. See NOTE 7 – Pension Plans, NOTE 8 – Stockholders’ Equity and NOTE 9 – Fair Value Measurements for further discussion.

Accounts receivable—Accounts receivable are stated at their estimated collectible amount and do not bear interest.

Inventories—Inventories of items for resale are stated at the lower of cost or net realizable value with cost being determined on the first-in, first-out basis.

Prepaid expenses and other - Prepaid expenses and other current assets consist primarily of amounts paid for expenses expected to be recognized within a year, and include the following at December 31:

Property and equipment—Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the following estimated useful lives:

Impairment of long-lived assets—Long-lived assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Generally, fair value is determined using valuation techniques such as the comparable sales approach based on either independent third party appraisals or pending/completed sales transactions.

Leases—Effective January 1, 2019, we account for leases under Accounting Standards Codification 842, Leases.  Under this guidance, arrangements meeting the definition of a lease are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. 

During the second quarter of 2019, we entered into certain operating leases with 36 month terms.  At December 31, 2020 and 2019, respectively, our consolidated balance sheets included a right of use asset of $112,000 and $188,000, a long-term lease liability of $33,000 and $112,000, and a short-term lease liability, which is included in accrued liabilities, of $79,000 and $76,000.

Income taxes—Deferred income taxes are provided on all differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements based upon enacted statutory tax rates in effect at the balance sheet date. We record a valuation allowance to reduce our deferred tax assets when uncertainty regarding their realizability exists. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of December 31, 2020, our valuation allowance on state net operating loss carryforwards net of federal income taxes was $363,000, which decreased by $2,099,000 in 2020. These state net operating losses are related to our Nashville facility that has not produced taxable income from operations. In 2020, we announced the reopening of Nashville Superspeedway and signed a four-year sanction agreement to host a NASCAR Cup Series race at the facility. We reversed a portion of the previously recorded valuation allowance on the state net operating loss carry forward as a result of this future taxable income. In November 2020, we entered into an agreement to sell land at our Nashville facility in 2021. We reversed an additional portion of the valuation allowance as a result of this future taxable income.

Revenue recognition—We classify our revenues as admissions, event-related, broadcasting and other. “Admissions” revenue includes ticket sales for our events. “Event-related” revenue includes amounts received from sponsorship fees; luxury suite rentals; hospitality tent rentals and catering; concessions and vendor commissions for the right to sell concessions and souvenirs at our events; sales of programs; track rentals; broadcasting rights other than domestic television broadcasting revenue, and other event-related revenues. Additionally, event-related revenue includes amounts received for the use of our property and a portion of the concession sales we manage from the Firefly Music Festival. “Broadcasting” revenue includes rights fees obtained for domestic television broadcasts of events held at our speedway.

All of our revenues are based on contracts with customers and, with the exception of certain track rentals, relate to two NASCAR event weekends and the Firefly Music Festival held at our Dover facility. Our contracts are typically for specific events or a racing season. We have several multi-year sponsorship contracts for our racing events and our contract with the promoter of the Firefly Music Festival is multi-year. Revenues pertaining to specific events are deferred and recorded as contract liabilities in our consolidated balance sheet until the event is held. As of December 31, 2020, contract liabilities in our consolidated balance sheet relate to 2021 events. As of December 31, 2019, contract liabilities in our consolidated balances sheets related to 2020 events. Concession and souvenir revenues are recorded at the time of sale. Revenues and related expenses from barter transactions in which we provide sponsorship packages in exchange for goods or services are recorded at fair value. Barter transactions accounted for $213,000, $538,000, and $685,000 of total revenues for the years ended December 31, 2020, 2019 and 2018, respectively.

The following table summarizes the liability activity related to contracts with customers for the years ended December 31:

We have contracted future revenues representing unsatisfied performance obligations. These contracts contain initial terms typically ranging from one to three years, with some for longer periods, excluding renewal options. We have excluded unsatisfied performance obligations for future NASCAR broadcasting revenue with contract terms through 2024.  We anticipate recognizing unsatisfied performance obligations for the calendar year ending 2021 and beyond of approximately $3,219,000 at December 31, 2020. 

Under the terms of our sanction agreements with NASCAR, we receive a portion of the broadcast revenue NASCAR negotiates with various television networks. NASCAR typically remits payment to us for the broadcast revenue within 30 days of the event being held. NASCAR retains 10% of the gross broadcast rights fees allocated to each NASCAR-sanctioned event as a component of its sanction fee. The remaining 90% is recorded as revenue. The event promoter is required to pay 25% of the gross broadcast rights fees to the event as part of the awards to the competitors, which we record as operating expenses.

Expense recognition—The cost of advertising is expensed as incurred. Advertising expenses were $56,000, $1,000,000, and $1,205,000 in 2020, 2019 and 2018, respectively. Certain direct expenses pertaining to specific events, including prize and point fund monies and sanction fees paid to NASCAR, and other expenses associated with our racing events are deferred until the event is held, at which point they are expensed.

Net earnings per common share—Nonvested share-based payment awards that include rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities, and the two-class method of computing basic and diluted net earnings per common share (“EPS”) is applied for all periods presented. The following table sets forth the computation of EPS (in thousands, except per share amounts):

There were no options outstanding during 2020, 2019 or 2018.

Accounting for stock-based compensation—We recorded total stock-based compensation expense for our restricted stock awards of $311,000, $294,000, and $302,000 as general and administrative expenses for the years ended December 31, 2020, 2019 and 2018, respectively. We recorded income tax benefits of $69,000, $71,000, and $83,000 for the years ended December 31, 2020, 2019 and 2018, respectively, related to vesting of our restricted stock awards.

Use of estimates—The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, disclosures about contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our best estimates and judgment. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Volatility in credit and equity markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Reclassifications – Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. As a result of the announcement that we will be moving one of our NASCAR Cup Series events historically held at Dover International Speedway to Nashville Superspeedway pursuant to a four-year sanction agreement with NASCAR, long-term assets that were historically shown separately on the consolidated balance sheet have been included in property and equipment, net. The impact of the reclassification made to prior year amounts is not material and did not affect net earnings or cash flows.

Recent accounting pronouncements—In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General. This new standard makes changes to the disclosure requirements for sponsors of defined benefit pension and/or other postretirement benefit plans to improve effectiveness of notes to the financial statements. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, and requires retrospective adoption. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. This new standard makes changes to the disclosure requirements for fair value measurements to improve effectiveness of notes to the financial statements. ASU 2018-14 is effective for fiscal years beginning after December 15, 2019, and generally requires retrospective adoption. The adoption of this ASU did not have a material impact on our financial statement disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. The ASU requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast.  We adopted the standard in the first quarter of 2019 using the prospective adoption approach and elected the practical expedient to not recognize lease assets and liabilities for leases with terms of twelve months or less.  The adoption of this ASU did not have a material impact on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments include the following:   1) Require certain equity investments to be measured at fair value with changes in fair value recognized in net

income; 2) Simplify the impairment assessment of equity investment’s without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require public business entities to use exit price notion when measuring fair value of financial instruments for disclosure purposes; and 4) Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting in a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others.  The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We adopted this standard effective January 1, 2018. In accordance with the standard, we reclassified $73,000, net of income taxes, of unrealized gains from accumulated other comprehensive loss to accumulated deficit as of January 1, 2018. See NOTE 8 – Stockholders’ Equity. Additionally, changes in fair value of equity investments are now included in other income (expense), net in our consolidated statements of earnings and comprehensive income. See NOTE 9 – Fair Value Measurements.

NOTE 3 – Property and Equipment

Property and equipment consists of the following as of December 31:

In the third quarter of 2019, management approved plans to remove certain grandstand seating following the completion of our 2019 race season.  As a result, we adjusted the service lives of those assets to properly reflect their shortened estimated useful life.  We recorded accelerated depreciation expense of $1,172,000 in 2019 related to these assets.  We incurred costs of $341,000 and $1,170,000 in 2020 and 2019, respectively, to remove seating which is included in costs to remove long-lived assets in our consolidated statement of earnings and comprehensive income. 

NOTE 4 – Accrued Liabilities

Accrued liabilities consist of the following as of December 31:

NOTE 5 – Long-Term Debt

At December 31, 2020, Dover Motorsports, Inc. and its wholly owned subsidiaries Dover International Speedway, Inc. and Nashville Speedway, USA, Inc., as co-borrowers had a $30,000,000 credit agreement with a bank group. On September 24, 2019, we modified the credit agreement to extend the maturity date to January 1, 2022 and reduce the total available borrowings under the facility from $35,000,000 to $30,000,000. Interest is based upon LIBOR plus a margin that varies between 125 and 175 basis points depending on the leverage ratio. At December 31, 2020 and 2019, there were no borrowings outstanding under the credit facility. The credit facility contains certain covenants including maximum funded debt to earnings before interest, taxes, depreciation and amortization (“leverage ratio”) and a minimum fixed charge coverage ratio. Material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements. In addition, the credit agreement includes a material adverse change clause. The credit facility also provides that if we default under any other loan agreement that would be a default under this facility. At December 31, 2020, we were in compliance with the terms of the credit facility. The credit facility provides for seasonal funding needs, capital improvements, letter of credit requirements and other general corporate purposes. After consideration of stand-by letters of credit outstanding, the remaining maximum borrowings available pursuant to the credit facility were $17,494,000 at December 31, 2020. On February 25, 2021, we modified the credit agreement to: (1) extend the maturity date to September 1, 2024; (2) to reduce the total available borrowings under the facility from $30,000,000 to $25,000,000; and (3) to replace the fixed charge coverage ratio with an interest coverage ratio. We expect to be in compliance with the financial covenants, and all other covenants, for all measurement periods during the next twelve months.

NOTE 6 – Income Taxes

The current and deferred income tax benefit (expense) is as follows:

A reconciliation of the effective income tax rate with the applicable statutory federal income tax rate is as follows:

Deferred income tax assets and liabilities are comprised of the following as of December 31:

Deferred income taxes relate to the temporary differences between financial accounting income and taxable income and are primarily attributable to differences between the book and tax basis of property and equipment and net operating loss carry-forwards (expiring through 2032). At December 31, 2020, we have available state net operating loss carryforwards of $54,000,000. Valuation allowances which reserved a portion of the state net operating loss carryforwards, net of federal tax benefit, decreased in 2020, 2019, and 2018 by $2,099,000, $4,543,000 and $1,286,000, respectively.

We recognize interest expense and penalties on uncertain income tax positions as a component of interest expense. No interest expense or penalties were recorded for uncertain income tax matters in 2020, 2019 or 2018. As of December 31, 2020 and 2019, we had no liabilities for uncertain income tax matters.

We file income tax returns with the Internal Revenue Service and the states in which we conduct business. We have identified the U.S. federal and state of Delaware as our major tax jurisdictions. As of December 31, 2020, tax years after 2016 remain open to examination for federal and Delaware income tax purposes.

NOTE 7 – Pension Plans

We maintain a non-contributory tax qualified defined benefit pension plan that has been frozen since July 2011. All of our full time employees were eligible to participate in the qualified plan. Benefits provided by our qualified pension plan were based on years of service and employees' remuneration over their employment period. Compensation earned by employees up to July 31, 2011 is used for purposes of calculating benefits under our pension plan with no future benefit accruals after this date. We also maintain a non-qualified, non-contributory defined benefit pension plan, the excess plan, for certain employees that has been frozen since July 2011. This excess plan provided benefits that would otherwise be provided under the qualified pension plan but for maximum benefit and compensation limits applicable under federal tax law. The cost associated with the excess plan is determined using the same actuarial methods and assumptions as those used for our qualified pension plan. The assets for the excess plan were $1,322,000 and $1,182,000 as of December 31, 2020 and 2019, respectively, and are recorded in other assets in our consolidated balance sheets (see NOTE 9 – Fair Value Measurements).

The following table sets forth the defined benefit plans’ funded status and amounts recognized in our consolidated balance sheets as of December 31:

The following table presents the amounts recognized in our consolidated balance sheets as of December 31:

Amounts recognized in accumulated other comprehensive loss that have not yet been recognized as components of net periodic pension benefit at December 31 are as follows:

The components of net periodic pension benefit for our defined benefit pension plans for the years ended December 31, 2020, 2019 and 2018 are as follows:

The net periodic pension benefit is included in other income (expense), net in our consolidated statements of earnings and comprehensive income.

The principal assumptions used to determine the net periodic pension benefit for the years ended December 31, 2020, 2019 and 2018, and the actuarial value of the benefit obligation at December 31, 2020 and 2019 (the measurement dates) for our pension plans are as follows:

We use the spot rate approach to determine the benefit obligation and the subsequent years’ interest cost component of the net periodic pension benefit. This method uses individual spot rates along the yield curve that correspond with the timing of each benefit payment and will provide a more precise measurement of the interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates.

For 2020, we assumed a long-term rate of return on plan assets of 5.75%. In developing the expected long-term rate of return assumption, we reviewed asset class return expectations and long-term inflation assumptions and considered our historical compounded return, which was consistent with our long-term rate of return assumption.

In determining the 2019 pension liability, we updated from the Society of Actuaries (“SOA”) RP-2014 mortality tables with SOA MP-2018 mortality improvement tables to the SOA Pri-2012 mortality tables with the SOA MP-2019 mortality improvement tables. This mortality update, along with a lower discount rate, resulted in an increase in our benefit obligation and accumulated other comprehensive loss at December 31, 2019. For 2020, we updated to the SOA MP-2020 mortality improvement tables, which along with a lower discount rate, resulted in an increase in our benefit obligation and accumulated other comprehensive loss at December 31, 2020.

Historically, our investment goals were to achieve a combination of moderate growth of capital and income with moderate risk.  Beginning in 2018, our investment strategy changed to a liability driven investment policy. Our asset management decisions are largely determined by the sum of current and future liabilities of our pension plan. Our liability driven investment strategies involve hedging, in whole or in part, the plan’s exposure to changes in interest rates and inflation. Our liability driven investments consist of exchange traded mutual funds that may have underlying investments in hedge funds that are comprised of bonds, swaps and other derivatives that over time seeks to achieve a return that matches or exceeds the growth in projected pension plan liabilities and duration. Our target allocations for plan assets are 20% equities and 80% liability hedges.

The fair values of our pension assets as of December 31, 2020 by asset category are as follows (refer to NOTE 9 – Fair Value Measurements for a description of Level 1, Level 2 and Level 3 categories):

The fair values of our pension assets as of December 31, 2019 by asset category are as follows (refer to NOTE 9 – Fair Value Measurements for a description of Level 1, Level 2 and Level 3 categories):

We have no minimum required pension contributions for 2021, but will consider making additional contributions.

Estimated future benefit payments are as follows:

We also maintain a non-elective, non-qualified supplemental executive retirement plan (“SERP”) which provides deferred compensation to certain highly compensated employees that approximates the value of benefits lost by the freezing of the pension plan which are not offset by our enhanced matching contributions in our 401(k)  plan.  The SERP is a discretionary defined contribution plan and contributions made to the SERP in any given year are not guaranteed and will be at the sole discretion of our Compensation and Stock Incentive Committee. In 2020, 2019 and 2018, we recorded general and administrative expenses of $88,000, $120,000, and $112,000, respectively, related to the SERP. During 2020, 2019 and 2018, we contributed $120,000, $108,000, and $85,000 to the plan, respectively. The liability for SERP pension benefits was $88,000 and $120,000 as of December 31, 2020 and 2019, respectively, and is included in accrued liabilities in our consolidated balance sheets.

We maintain a defined contribution 401(k) plan that permits participation by substantially all employees. Our matching contributions to the 401(k) plan were $132,000, $118,000, and $129,000 in 2020, 2019 and 2018, respectively.

NOTE 8 – Stockholders’ Equity

Changes in the components of stockholders’ equity are as follows (in thousands, except per share amounts):

As of December 31, 2020 and 2019, accumulated other comprehensive loss, net of income taxes, consists of the following:

Holders of common stock have one vote per share and holders of Class A common stock have ten votes per share. There is no cumulative voting. Shares of Class A common stock are convertible at any time into shares of common stock on a share for share basis at the option of the holder thereof. Dividends on Class A common stock cannot exceed dividends on common stock on a per share basis. Dividends on common stock may be paid at a higher rate than dividends on Class A common stock. The terms and conditions of each issue of preferred stock are determined by our Board of Directors. No preferred shares have been issued.

Effective June 14, 2016, we adopted a stockholder rights plan. The rights are attached to and trade in tandem with our common stock. The rights, unless earlier redeemed by our board of directors, will detach and trade separately from our common stock only upon the occurrence of certain events such as the unsolicited acquisition by a third party of beneficial ownership of 10% or more of our outstanding combined common stock and Class A common stock or the announcement by a third party of the intent to commence a tender or exchange offer for 10% or more of our outstanding combined common stock and Class A common stock. After the rights have detached, the holders of such rights would generally have the ability to purchase such number of either shares of our common stock or stock of an acquirer of our company having a market value equal to twice the exercise price of the right being exercised, thereby causing substantial dilution to a person or group of persons attempting to acquire control of our company. The rights may serve as a significant deterrent to unsolicited attempts to acquire control of us, including transactions involving a premium to the market price of our stock. The rights expire on June 13, 2026, unless earlier redeemed.

On July 28, 2004, our Board of Directors authorized the repurchase of up to 2,000,000 shares of our outstanding common stock. The purchases may be made in the open market or in privately negotiated transactions as conditions warrant. The repurchase authorization has no expiration date, does not obligate us to acquire any specific number of shares and may be suspended at any time. We made no purchases in 2020. During the years ended December 31, 2019 and 2018, we purchased and retired 315,840 and 308,928 shares of our outstanding common stock at an average purchase price of $1.99 and $2.08 per share, respectively, not including nominal brokerage commissions. At December 31, 2020, we had remaining repurchase authority of 384,809 shares.

During the years ended December 31, 2020, 2019 and 2018, we purchased and retired 50,572, 48,457, and 47,236 shares of our outstanding common stock at an average purchase price of $1.86, $1.99 and $2.00 per share, respectively. These purchases were made from employees in connection with the vesting of restricted stock awards under our Stock Incentive Plan and were not pursuant to the aforementioned repurchase authorization. Since the vesting of a restricted stock award is a taxable event to our employees for which income tax withholding is required, the plan allows employees to surrender to us some of the shares that would otherwise have transferred to the employee in satisfaction of their tax liability. The surrender of these shares is treated by us as a purchase of the shares.

We have a stock incentive plan, adopted in 2014, which provides for the grant of up to 2,000,000 shares of common stock to our officers and key employees through stock options and/or awards valued in whole or in part by reference to our common stock, such as nonvested restricted stock awards. Under the plan, nonvested restricted stock vests an aggregate of twenty percent each year beginning on the second anniversary date of the grant. The aggregate market value of the nonvested restricted stock at the date of issuance is being amortized on a straight-line basis over the six-year period. As of December 31, 2020, there were 1,176,000 shares available for granting options or stock awards.

Nonvested restricted stock activity for the year ended December 31, 2020 was as follows:

The aggregate market value of the nonvested restricted stock at the date of issuance is being amortized on a straight-line basis over the six-year service period or the service period remaining until normal retirement age, if shorter. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 based on the weighted average grant date fair value was $329,000, $328,000, and $288,000, respectively. The grant-date fair value per share of nonvested restricted stock awards granted during the years ended December 31, 2020, 2019 and 2018 was $1.86, $1.99, and $2.00, respectively. We recorded compensation expense of $311,000, $294,000, and $302,000 related to restricted stock awards for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $520,000 of total unrecognized compensation cost related to nonvested restricted stock awards granted to employees under our stock incentive plan. That cost is expected to be recognized over a weighted-average period of 3.6 years.

NOTE 9 – Fair Value Measurements

Our financial instruments are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes the valuation of our financial instrument pricing levels as of December 31, 2020 and 2019:

Our investments consist of mutual funds. These investments are included in other assets in our consolidated balance sheets. Gains and losses on our investments for the year ended December 31, 2020 are as follows:

The carrying amounts of other financial instruments reported in our consolidated balance sheets for current assets and current liabilities approximate their fair values because of the short maturity of these instruments.

There were no borrowings outstanding under our credit facility at December 31, 2020 or 2019. Borrowings under our revolving credit agreement bear interest at the variable rate described in NOTE 5 – Long-Term Debt and therefore we believe would approximate fair value.

NOTE 10 – Related Party Transactions

During the years ended December 31, 2019 and 2018, Dover Downs Gaming & Entertainment, Inc. (“Gaming”), a company previously related through common ownership, allocated costs of $430,000 and $1,775,000, respectively, to us for certain administrative and operating services, including leased space.  We allocated certain administrative and operating service costs of $110,000 and $189,000, respectively, to Gaming for the years ended December 31, 2019 and 2018.  The allocations were based on an analysis of each company’s share of the costs. In connection with our NASCAR event weekends at Dover International Speedway, Gaming provided certain services, primarily catering, for which we were invoiced $847,000 during the year ended December 31, 2018.  Additionally, we invoiced Gaming $15,000, and $211,000 during 2019 and 2018, respectively, for tickets, our commission for suite catering and other services to the NASCAR events.  Effective March 28, 2019, Gaming became part of Twin River Worldwide Holdings, Inc. as a result of a merger, and therefore, was no longer related through common ownership. Accordingly, the amounts reflected above for the year ended December 31, 2019 are only through March 28, 2019. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been unrelated entities and/or had otherwise independently managed these functions; however, management believes that these costs are reasonable. 

Prior to the spin-off of Gaming from our company in 2002, both companies shared certain real property in Dover, Delaware.  At the time of the spin-off, some of this real property was transferred to Gaming to ensure that the real property holdings of each company were aligned with its past uses and future business needs.  During its harness racing season, Gaming has historically used the 5/8-mile harness racing track that is located on our property and is on the inside of our one-mile motorsports superspeedway.  In order to continue this historic use, we granted a perpetual easement to the harness track to Gaming at the time of the spin-off.  This perpetual easement allows Gaming to have exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period.  The easement requires that Gaming maintain the harness track but does not require the payment of any rent.

Various easements and agreements relative to access, utilities and parking have also been entered into between us and Gaming relative to our respective Dover, Delaware facilities.  We pay rent to Gaming for the lease of our principal executive office space. 

Henry B. Tippie, Chairman of our Board of Directors, controls in excess of fifty percent of our voting power.  Mr. Tippie's voting control emanates from his direct and indirect holdings of common stock and Class A common stock and from his status as a trustee of the RMT Trust, our largest stockholder.  This means that Mr. Tippie has the ability to determine the outcome of the election of directors and to determine the outcome of many significant corporate transactions, many of which only require the approval of a majority of our voting power. 

NOTE 11 – Commitments and Contingencies

We lease equipment with leases expiring at various dates through 2022. Total rental expense charged to operations amounted to $81,000, $47,000, and $67,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

In September 1999, the Sports Authority of the County of Wilson (Tennessee) issued $25,900,000 in Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, to acquire, construct and develop certain public infrastructure improvements which benefit Nashville Superspeedway, of which $12,300,000 was outstanding at December 31, 2020. Annual principal payments on these bonds range from $1,100,000 in September 2021 to $1,600,000 in 2029 and are payable solely from sales taxes and incremental property taxes generated from the facility. These bonds are direct obligations of the Sports Authority and therefore have historically not been required to be recorded on our consolidated balance sheet. If the sales taxes and incremental property taxes (“applicable taxes”) are insufficient for the payment of principal and interest on the bonds, we would become responsible for the difference. In the event we were unable to make the payments, they would be made pursuant to a $12,506,000 irrevocable direct-pay letter of credit issued by our bank group. We are exposed to fluctuations in interest rates for these bonds.

As of December 31, 2020 and 2019, $217,000 and $637,000, respectively, was available in the sales and incremental property tax fund maintained by the Sports Authority to pay the remaining principal and interest due under the bonds. During 2020, we paid $945,000 into the sales and incremental property tax fund and $1,365,000 was deducted from the fund for debt service. If we fail to maintain the letter of credit that secures the bonds or we allow an uncured event of default to exist under our reimbursement agreement relative to the letter of credit, the bonds would be immediately redeemable.

Prior to our recent decision to reopen Nashville Superspeedway in 2021, we had not promoted motorsports events at that facility since 2011. In 2011, we recorded a $2,250,000 provision for contingent obligation reflecting the present value of the estimated portion of the revenue bonds debt service that may not be covered by the projected sales and incremental property taxes from the facility. Due to changing interest rates and future property and sales tax assumptions, the provision for contingent obligation decreased by $171,000 in 2020 and increased by $1,005,000 and $424,000 in 2019 and 2018, respectively, and is $3,218,000 at December 31, 2020. See NOTE 1 – Business Operations.

We have employment, severance and noncompete agreements with certain of our officers and directors under which certain change of control, severance and noncompete payments and benefits might become payable in the event of a change in our control, defined to include a tender offer or the closing of a merger or similar corporate transactions. In the event of such a change in control and the subsequent termination of employment of all employees covered under these agreements, we estimate that the maximum contingent liability would range from $8,000,000 to $8,900,000 depending on the tax treatment of the payments.

To the extent that any of the potential payments or benefits due under the agreements constitute an excess “parachute payment” under the Internal Revenue Code and result in the imposition of an excise tax, each agreement requires that we pay the amount of such excise tax plus any additional amounts necessary to place the officer or director in the same after-tax position as he would have been had no excise tax been imposed. We estimate that the tax gross ups that could be paid under the agreements in the event the agreements were triggered due to a change of control could be between $2,000,000 and $2,900,000 and these amounts have been included in the maximum contingent liability disclosed above.  This maximum tax gross up figure assumes that none of the payments made after the hypothetical change in control would be characterized as reasonable compensation for services rendered. Each agreement with an executive officer provides that fifty percent of the monthly amount paid during the term is paid in consideration of the executive officer’s non-compete covenants. The exclusion of these amounts would reduce the calculated amount of excess parachute payments subject to tax. We are unable to conclude whether the Internal Revenue Service would characterize all or some of these non-compete payments as reasonable compensation for services rendered.

We are also a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a material adverse effect on our results of operations, financial position or cash flows.