McLaren awarded more than $12m in damages in Palou legal dispute

The judge presiding over the London-based lawsuit filed by McLaren Racing against Alex Palou seeking more than $20 million in damages for breach of contract dismissed the larger portion related to Formula 1 on Friday, but has upheld the damages sought on the IndyCar side of the agreement.

Palou’s legal team has the right to appeal the finding, but if the ruling remains in place, the reigning IndyCar Series champion and Indianapolis 500 winner will owe McLaren just over $12 million.

“This is an entirely appropriate result for McLaren Racing,” said McLaren CEO Zak Brown. “As the ruling shows, we clearly demonstrated that we fulfilled every single contractual obligation towards Alex and fully honored what had been agreed. We thank the court for recognizing the very significant commercial impact and disruption our business suffered as a result of Alex’s breach of contract with the team.”

RACER understands the legal costs for both sides exceeded the amount of damages Palou must pay. McLaren says it will seek reimbursement from the Spaniard for those expenses, which would more than double the financial outlay if successful.

“McLaren Racing has been awarded damages of well over $12 million to compensate the business for the commercial loss and disruption suffered following IndyCar driver Alex Palou’s breach of contract with the team,” McLaren wrote.

“In addition to the damages award, McLaren Racing will be seeking interest and reimbursement of its legal expenses at a further hearing. As the judgment records, Alex Palou had the backing of Chip Ganassi Racing in attempting to deny McLaren Racing’s claims.”

Palou was pleased to see the larger portion of McLaren’s pursuit involving alleged losses incurred by Palou’s absence from its F1 program, which would have pushed the ruling closer to $30,000,000 if it had been accepted by the judge.

"The court has dismissed in their entirety McLaren's Formula 1 claims against me which once stood at almost $15m,” Palou said. “I’d like to thank (former F1 team principal) Otmar Szafnauer for his expert assistance.

“The court's decision shows the claims against me were completely overblown. It's disappointing that so much time and cost was spent fighting these claims, some of which the Court found had no value, simply because I chose not to drive for McLaren after I learned they wouldn't be able to give me an F1 drive.

“I'm disappointed that any damages have been awarded to McLaren. They have not suffered any loss because of what they have gained from the driver who replaced me. I am considering my options with my advisors and have no further comments to make at this stage. I look forward to the upcoming season with Chip Ganassi Racing.”

Palou’s IndyCar team owner Chip Ganassi, who backed his legal defense, also weighed in on the conclusion to the trial.

“Alex has our full support, now and always,” Ganassi said. “We know the character of our driver and the strength of our team, and nothing changes that. While we respect the legal process, our focus is exactly where it should be: on racing, on winning, and on doing what this organization has always done best, competing at the highest level.

"We’re locked in on chasing another IndyCar Series championship and defending our 2025 Indianapolis 500 victory. That’s where our energy is, and that’s where Alex’s focus is, on the track, doing what he does best: winning.”

Barring a successful appeal by Palou, the judge’s decision brings an ends to a yearslong dispute between Palou and McLaren which began when the Ganassi driver grew dissatisfied with his Ganassi contract which paid a low six-figure annual salary and signed to drive for the Arrow McLaren IndyCar team in 2023.

But Ganassi held an option on Palou for 2023, which it exercised, and through negotiations, he signed a new one-year contract with Ganassi at an increased salary while securing the freedom to leave for McLaren in 2024.

Palou duly signed a contract to drive for Arrow McLaren in 2024 while receiving a small signing bonus, but grew disinterested in moving to McLaren when the F1 side of the operation executed long-term contracts with its existing F1 drivers, which suggested Palou’s dream of reaching F1 with McLaren at some point during his tenure with the organization would go unfulfilled.

In response, Palou refused to leave Ganassi and went on to win the 2024 and 2025 IndyCar championships while McLaren began its pursuit of current and future monies it claimed were lost due to Palou’s absence.

The judge sided with McLaren on its IndyCar losses, and wrote in his closing statement: “By way of conclusion and taking into account credit in respect of the particular aspects to which I have referred but not otherwise: (1) The driver salary claim succeeds in the sum of $1,312,500. (2) The NTT base fee claim succeeds in the following amounts: 2024-2026: $5,382,344; and 2027: $950,000. (3) The GM uplift loss succeeds in the sum claimed: $500,000. (4) The F1 loss claim fails.

“(5) The other sponsorship losses claim succeeds in that the methodology used by (McLaren’s lead counsel) Mr Harris is appropriate, except in respect of step 3 and his reliance upon the Palou 2024 Rate Card. Mr Harris will need to carry out the exercise which he explained he had not yet done but which he thought would likely result in a loss of between $2 million to $2.5 million. Mr Steadman and the Defendants will obviously need to say whether they agree with whatever figure is arrived at by Mr Harris. (6) The loss of performance-based revenue claim succeeds in the amount of $2.05 million. (7) The wasted expenditure claim fails. (8) The restitutionary claim fails.

“Consequential matters will need to be addressed separately in the event that they cannot be agreed. I end by thanking all counsel and solicitors for the admirable way in which this hard fought case was conducted.”