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McLaren v Palou: What's on the line in high-stakes court case?

One of the wildest contractual sagas in living memory will play out in a UK High Court next year as the messy Alex Palou and McLaren breakup is resolved.

Alex Palou, McLaren F1 testing at Barcelona

Alex Palou, McLaren F1 testing at Barcelona

Monaco Increase Management

A commercial court judge in the Business and Property Courts of England and Wales will decide what damages McLaren is to receive following Palou’s U-turn last summer that breached both driving and promotional contracts he’d signed to race in the IndyCar Series and act as its reserve Formula 1 driver.

Legal documents that have been filed to the court from both sides have been reviewed by Autosport, and they reveal that Palou is not disputing his breach of contract but is contesting the size of the damages that McLaren is seeking as recompense.

Palou’s given reason for the split was that he “lost trust and confidence” in what he believed was a promise of a future F1 race seat, something that McLaren counters as “baseless”.

Palou had already driven McLaren’s TPC (testing previous cars) machinery, taken part in FP1 at the 2022 United States GP and attended the 2023 Miami GP as its official reserve driver. He did this as part of a mediation agreement from a previous contractual spat between McLaren and his current IndyCar team, Chip Ganassi Racing.

In that case, heard in the American legal system, Ganassi kept Palou as its IndyCar driver in 2023 and he won his second title for the team. Apart from references to his latest Ganassi contract, a three-year deal that he committed to in August of last year to spark the McLaren split, CGR is not a part of this lawsuit in any way.

The claimant is McLaren Indy LLC and McLaren Racing Ltd and the defendant is Palou himself and his American company ALPA Racing USA LLC, which operates his services as a racing driver.

Alex Palou, McLaren testing at Hungaroring

Photo by: McLaren

Alex Palou, McLaren testing at Hungaroring

Palou’s legal team reveals his reason for split

In the written statement of defence, Palou’s lawyers state: “In 2022, believing that [McLaren was] aligned with his ambition ultimately to race in the Formula 1 Series in the medium and long term, [Palou] entered into a series of agreements.”

They later go on to give a reason for the U-turn: “In the event, [Palou] lost trust and confidence that [McLaren] genuinely intended to support his ambition to race in the Formula 1 Series and decided to continue racing with CGR in the Indy Car Series instead.”

The defence also states: “The real issue between the parties is as to the question of any damages which [Palou and his company] are liable to pay to [McLaren] as a result.”

On this subject, it claims: “[McLaren’s] damages are inadequately particularised, misconceived in a number of respects and vastly overinflated.”

Another piece of information that the Palou defence does reveal is that his CGR contract does not restrict him from taking an F1 race seat opportunity elsewhere, should it arise.

Alex Palou prepares to drive McLaren guests on the Hot Laps experience at the 2023 Miami GP

Photo by: Michael Potts / Motorsport Images

Alex Palou prepares to drive McLaren guests on the Hot Laps experience at the 2023 Miami GP

What McLaren is seeking in damages from Palou

The bottom line is that McLaren is seeking $23 million in damages from Palou.

It is claiming lost revenues and expenses with regards to replacing him, stating that Palou’s U-turn led to the renegotiation of its commercial deal with sponsor NTT Data – which it estimates at $6.9m, split into its annual sponsor fee of just over $3m and $3.9m for appearances at three F1 races and “sponsorship of its Indy Series engineering centre”.

McLaren also claims it will lose $1.5m over three years in “team support” via sponsorship from engine supplier General Motors that it says is dependent on “three full-time A-level drivers”.

Apart from commercial deals, it is claiming a further $7m in expected prize money, merchandise and sponsorship arrangements “in consequence of his status as a two-time NTT Indy Car Series champion”.

On the F1 side, McLaren estimates that Palou’s opportunities with its TPC program amount to $3.5m – as this time “would otherwise have been available for hire” – and an extra $2.8m of wasted expenditure on “driver support” for the TPC runs, F1 simulator, etc.

Finally, it is also looking to recoup a sum of $400,000 that was paid as a sign-on bonus – as well as court costs.

The majority of the response from Palou’s lawyers – a dozen pages of the filing – is to contest these claims and figures.

And this is the crux of this case, after going through each point and coming to a verdict on what the final number is. It will be for a judge to decide exactly what that outcome is.

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