What's at stake in McLaren's $20m UK lawsuit against Alex Palou

McLaren‘s $20 million lawsuit against IndyCar champion Alex Palou has opened in the UK Commercial Court, marking one of the most significant contract disputes in recent motor sport history.

The lawsuit stems from a breached contract for Palou to join McLaren’s IndyCar team, a commitment he ultimately reversed.

The core of the legal dispute is not whether a breach occurred, but rather the financial damages that should be paid as a result.

Efforts to resolve the situation amicably between the parties failed, prompting McLaren to pursue legal action to recover what it considers substantial financial losses; a claim contested by Palou.

The trial is expected to conclude in November 2025, and both Palou himself and McLaren CEO Zak Brown will be among the witnesses.

Background

The McLaren–Alex Palou saga began in 2022, when the IndyCar star was emerging as one of the brightest talents in American open-wheel racing.

After winning his first IndyCar title in 2021 and establishing himself as a consistent frontrunner, Palou attracted interest from teams across both IndyCar and Formula 1.

McLaren, eager to bolster its IndyCar operation and secure a potential F1 talent pipeline, signed him to a multi-part agreement: Palou would join McLaren’s IndyCar team while also taking on a Formula 1 reserve driver role.

This dual arrangement was designed to give him exposure to the top tier of motor sport while strengthening McLaren’s driver development strategy.

“I’m extremely excited to join the driver roster for such an iconic team as McLaren,” a quote attributed to Palou said in McLaren’s press release at the time.

“I’m excited to be able to show what I can do behind the wheel of a Formula 1 car and looking at what doors that may open. I want to thank everyone at Chip Ganassi Racing for everything they have done for me.”

However, an initial dispute with Chip Ganassi pushed the deal back by a year, with Palou committed to driving for McLaren from 2024. By the second half of 2023, however. Lando Norris and Oscar Piastri were already forging their partnership at the team, with long-tern contracts. Palou ultimately chose to remain with Chip Ganassi Racing, extending his existing IndyCar deal.

While Palou admits he breached the agreement, he disputes the scale of McLaren’s claimed losses, arguing that many of the projected damages, especially anticipated sponsorship revenue and commercial benefits, were speculative and never guaranteed.

McLaren’s lawsuit is as much a test of contractual enforcement as it is a fight over money.

McLaren’s claim

McLaren is seeking roughly $20 million, though some filings had initially put the figure closer to $23–30 million.

The team claims that Palou’s decision to stay with Ganassi caused direct and indirect financial losses, including sponsorship and commercial revenue, tied to marketing plans that assumed Palou’s arrival, sunk costs, replacement expenses such as renegotiating other driver contracts after Palou withdrew, and opportunity costs, covering potential prize money, exposure, and competitive advantage.

A major component is a claimed loss of $23 million from a sponsorship deal with IndyCar sponsor NTT that was reportedly designed around Palou and had to be reworked after he backed out.

McLaren also states it lost nearly $7 million in other potential sponsorship opportunities.

The team claims it had to increase Pato O’Ward‘s salary by $5.1 million to retain him as a top driver following Palou’s U-turn and lists other driver-related expenses, including Christian Lundgaard’s $6.3 million salary.

Furthermore, McLaren seeks to recover a $400,000 signing bonus it paid Palou and $703,000 spent on F1 testing sessions he participated in.

Palou’s position

Palou disputes the scale of the team’s claimed losses.

His legal team argues that many of the claimed damages are overstated or speculative, particularly regarding sponsorship and ‘lost opportunity’ figures.

According to Reuters, Palou’s legal team said McLaren is trying to “take Mr Palou to the cleaners”.

Since his decision to stay at Ganassi, Palou has claimed three consecutive IndyCar titles in 2023, 2024 and 2025 and has won this year’s Indianapolis 500 to add his name to the list of most successful drivers in the series’ history.

Under UK contract law, acknowledging a breach does not automatically entitle McLaren to the full claimed sum, and the team must demonstrate that losses were real and quantifiable.

“It’s good that it’s going to end this year,” Palou told Fox Sports. “And I obviously don’t know how everything is going to play out or how it’s going to go.

“It’s my first time [in court], so you don’t really know what to expect. But I’m happy that it’ll be the first Christmas in a long time that it’s been [without this drama].”

What’s really at stake

For McLaren, a win would reinforce its reputation for contractual rigour, deterring others from testing the limits of its agreements.

A loss, or even a significant reduction in the damages claimed, might weaken its credibility and highlight the difficulty of quantifying speculative commercial losses.