Taxpayer cashes in as star power pushes O2 sales to record £60m

Government gets 15 per cent of arena's profits, but still has to pay off its building bill of £600m

Sales at London's O2 arena rose 14 per cent to a record £60.3m last year after a string of sell-out concerts by stars including Beyoncé, Rihanna, Britney Spears and Paul McCartney.

The Government is a winner from the O2's success, as one of the conditions of the sale of the venue to US sports conglomerate Anschutz Entertainment Group was that 15 per cent of its net profits would be paid to the taxpayer for 25 years. However, it will be some time before the Government turns a profit on the O2, as it spent £600m building the arena, which first opened a decade ago.

The O2, run by AEG's UK company, Ansco Arena, is the world's most popular music venue. In the year ending 31 December 2009, it sold 2.3 million tickets.

Ansco's income is generated from a rental charge and from taking a proportion of ticket sales, which both vary depending on the performer. Despite the boost to its revenue, Ansco's bottom line suffered due to the economic downturn.

As interest rates crashed last year, it received £500,000 in interest from its £65.5m cash pile, compared with £1.8m in 2008. This led to its pre-tax profits rising by only 1 per cent to £15.8m. A £3.8m tax payment left the company with net profits of £12m, down from £15.6m the previous year.

Ansco's improved liquidity allowed it to cut what it owed trade creditors by 38 per cent, and it also made £2.5m of capital investments. The arena represents the bulk of the company's assets and is valued at £201m. AEG is now planning a £200m expansion, including a 450-bedroom, four-star hotel and conference centre.

When the venue was owned by the Government, it was known as the Millennium Dome, and housed a theme park. It took two years for AEG to transform it into a 23,000-seater arena which has 30 restaurants, bars and cafés, as well as an 11-screen cinema. AEG also managed to secure sponsorship, estimated at £6m annually, from the mobile phone company O2.

Ansco still owes AEG £416.3m, which it invested in the conversion, and the debt left the company with £213m of net current liabilities last year. However, the accounts state that this is not a business risk since it is repayable on demand, and AEG has committed to financially supporting the company if necessary for at least another year.

AEG operates a total of 51 venues around the world. It also owns Los Angeles Galaxy, the US soccer club that David Beckham plays for, and a wide range of other sports properties.