The 9 reasons McLaren believes Alex Palou owes $22 million for breach of contract
>> A $6.9 million loss in renegotiated deals with NTT and NTT DATA Americas.
>> $1.5 million in lost ‘team support’ payments over the next three IndyCar seasons from General Motors for not having a third ‘A level’ driver employed.
>> A $400,000 signing bonus paid more than 14 months before the two-time IndyCar champion would have joined the team.
The trio of line items are among the $22 million in losses McLaren Racing and Arrow McLaren are looking to recoup from Alex Palou in a U.K. Commercial Court lawsuit, extensively detailed in the case’s latest filing, a 17-page document obtained and reviewed by IndyStar.
In its pages, Timothy Murnane, McLaren Group Limited’s group legal director and company secretary, along with McLaren and Arrow McLaren’s lawyers from Morgan Lewis & Bockius UK LLP detail a nearly 11-month-long saga that began with the signing of four separate agreements (or letters) allegedly binding the parties for the 2024, 2025 and 2026 IndyCar seasons and ended with communication through lawyers about contract breaches, refusals to carry out purported obligations and the potential of a promised ride in Formula 1.
Below are the details, dates and financial sums McLaren and Arrow McLaren are claiming in eight-figure suit against Chip Ganassi Racing’s 26-year-old Spanish driver.
9 ways McLaren claims it lost money
McLaren’s lawyers divided up its losses into nine pools. Here is how they broke down those numbers:
LOST REVENUES IN INDYCAR: $7 million
This “best estimate of losses,” McLaren says, is related to the difference between the revenue the team would’ve expected to bring in with Palou on its IndyCar roster for three seasons – related to sponsorship, prize money, merchandise sales and the use of Palou’s name, image and likeness – compared to what it believes it will without the two-time IndyCar champion.
LOST REVENUES FROM SPONSORSHIP WITH NTT/NTT DATA AMERICAS: $6.9 million
Arrow McLaren signed a multi-year sponsorship deal with NTT Data Americas on Oct. 28, 2022 after its agreement with Chip Ganassi Racing ended. The parties had been engaged in negotiations when there was a chance NTT DATA’s sponsorship could directly follow Palou’s move to Arrow McLaren in 2023.
Even after Palou and Ganassi settled their lawsuit and agreed to a new one-year deal for 2023, Arrow McLaren managed to sway its new partner. But it was done with the understanding that NTT DATA would be Palou’s primary sponsor with Arrow McLaren from 2024-26.
“By reason of (Palou’s) breaches, which have resulted in (Palou) not providing his services as a driver, NTT have required the NTT Agreement to be renegotiated,” McLaren's filing reads. “While negotiations are (at the time of writing) ongoing, the Claimants’ best estimates of its losses presently amount to $6,900,000.”
McLaren and Arrow McLaren go on to explain they expect to be in a position to take in $3,075,000 less from NTT DATA than had previously been agreed to in the pair’s original deal, and McLaren also expects to have to provide NTT with another $3,825,000 in previously unplanned compensation to settle the renegotiation that includes branding on its cars at three future F1 races and title sponsorship of Arrow McLaren’s soon-to-come brand-new engineering center.
LOST REVENUES FROM MCLAREN F1 TPC PROGRAM: $3.5 million
McLaren claims that, had it not hired Palou to take part in its F1 team’s ‘Testing Previous Car’ program last year in the wake of the driver’s settlement with CGR, the team could have awarded those test days -- of which the team has 8-12 of a year -- to other drivers who would’ve been willing to pay a fee.
LOST TEAM SUPPORT PAYMENTS FROM GENERAL MOTORS: $1.5 million
In Arrow McLaren’s IndyCar engine manufacture contract with Chevy, the filing states the team would’ve “reasonably expected” to receive “uplift” in its “team support” from Chevy of $500,000 per year during Palou's three-year deal. The extra cash, though, relied on Arrow McLaren fielding a three-driver lineup full of what Chevy considered “A-level" talent.
Clearly, the OEM classified four-time race-winner and 20-time podium finisher Pato O’Ward and 2016 Indy 500-winner Alexander Rossi in that pool. Palou’s replacement, with two IndyCar seasons, two podiums and a best finish in points of 16th, did not. (Sorry, David Malukas.)
COSTS OF PALOU’S F1 DRIVER SUPPORT PROGRAM: $868,585
McLaren says the above figure represents its “best estimate” of the cost of running Palou’s F1 test and reserve driver program. Though neither side has confirmed this notion, IndyStar understands this expense/loss as such: the pair’s contract regarding Palou’s role as an F1 test and reserve driver may have stipulated that leaving the program prematurely would result in being responsible for the costs of said program. Think of it like a business offering its employee tuition assistance for training but requiring the employee to pay it back if they leave before they complete the program.
According to the filing, McLaren lists various costs in this pool including running Palou’s TPC program, his tests in McLaren’s current F1 car, the use of the team’s simulator and the “kit, equipment, power and labor costs” related to the above programs.
PAYMENT OF PALOU’S SIGNING BONUS: $400,000
McLaren and Arrow McLaren claim that on Jan. 9, they paid ALPA Racing a $400,000 signing bonus, just over three months after the sides had signed the contracts. Previously, McLaren Racing CEO Zak Brown has written that that sum was at the request of Palou.
COSTS TO OBTAIN NEW F1 RESERVE DRIVER FOR REST OF 2023 SEASON: $35,000
Before the start of this F1 season, McLaren had linked up with the Aston Martin F1 team to ensure it had access to an additional reserve driver. As the filing explains, by virtue of Palou refusing to serve in a reserve driver role for McLaren for the final eight races of the 2023 campaign, McLaren was forced to extend its arrangement with Aston Martin, incurring a fee it estimates to be $35,000.
Insider: How the loss of Alex Palou will affect Zak Brown, Arrow McLaren
LOST REVENUES IN FORMULA 1: Unknown
This section of lost revenues is perhaps most curious and unclear. McLaren describes a difference in funds they would’ve expected to receive from their participation in F1 (sponsorship, merchandise sales and the use of Palou’s name, image and likeness) compared to what they’ll now realistically be able to without him on their roster.
McLaren also contends earlier in the filing that the assertion from Palou’s lawyers that their client had been promised an F1 ride that no longer seemed attainable – a notion central to Palou’s abandoning his deals with McLaren and Arrow McLaren without fault – was “baseless.” One would presume that a reserve driver wouldn't lead to considerable profits or deals for an F1 team. The paragraph does end with this: “…it being within the parties’ reasonable contemplation that (McLaren) intended to re-engage (Palou) to drive for it in the World Championships of the Formula 1 series.”
Whether that above phrase is merely a fancy way of saying Palou could’ve been expected to continue serving as a reserve driver or if McLaren did have thoughts of pursuing Palou as an actual F1 driver, and that option no longer existing within its related losses, is unclear.
COSTS TO FIND AND TRAIN DRIVER TO REPLACE PALOU: Unknown
McLaren includes this monetary loss in a broader group it characterized as “wasted expenditures,” along with Palou’s F1 driver support and the fee of securing another reserve driver, that the team believed to represent losses of no less than $2,772,750. The latter two estimates combine to be just over $900,000, meaning McLaren believes the costs of McLaren and Arrow McLaren to “find, recruit and train” Palou’s replacements for a F1 reserve driver and IndyCar driver to be well over $1 million.
In the filing, the McLaren wrote that the sum of the losses “is not presently known,” perhaps because the process of getting a new IndyCar driver like Malukas remotely at a championship level is ongoing and will be for some time.
Court documents: McLaren Racing claims Alex Palou signed 3-year IndyCar deal last October
'No outstanding obligation under any contract ...'
According to the suit, in one of four agreements Palou allegedly agreed, among other things, that:
>>ALPA Racing “has no outstanding obligation under any contract or agreement which would or might interfere with or prevent it from carrying out its obligations.”
>>Palou would “perform all such obligations and acts reasonably required by me to enable (ALPA Racing) to comply with such obligations.”
>>if ALPA Racing defaulted in its responsibilities, Palou would “on demand pay and discharge all sums of money and liability which may be due, owed, incurred or unpaid by it.”
>>if ALPA Racing “defaulted on the performance of any of its obligations, (Palou) would perform and observe such obligations.”
>>he would “promptly and to the best of his ability perform all acts necessary on his part to enable (ALPA Racing) to comply fully with its obligations” and not to “prevent or impede full compliance by (ALPA Racing) with such obligations or do anything which would conflict with, violate or be inconsistent with or prejudice the provisions or intentions of the Agreement.”
>>he would notify the Claimants of “any person who seeks to acquire his services in such a manner as would place (ALPA Racing) in breach of the Agreement if his services were so acquired.”
'I'm sad the way it's worked out': Alex Palou responds to McLaren lawsuits
'Baseless'
Though Brown has contended he had already begun to suspect his brief, official relationship with Palou was ending, Palou’s lawyers, Jonathan Hadaya and Adam Ross, made it official when they notified Brown on Aug. 8, according to the filing. The lawyers informed Brown that Palou had a new contract with Chip Ganassi Racing in IndyCar that, at minimum, extended through the 2024, 2025 and 2026 seasons Palou was set to race for Arrow McLaren.
Seeing this action as a clear breach of contract, Murnane, McLaren’s legal director, sent a letter to Palou and ALPA Racing on Aug. 10 to ensure Palou would fulfill the driving agreement -- both across his 3-year IndyCar deal, as well as his F1 reserve driver duties set to start the weekend after the IndyCar season-finale in Singapore. With no response, Murnane sent a formal “breach notice” and gave the parties 15 days to remedy it.
Palou’s lawyers responded to Aug. 21, giving what McLaren writes to be a “wrongful assertion” that McLaren had “represented and/or promised to (Palou/ALPA Racing) that he would serve as a full-time F1 driver, and not only a reserve driver.”
“It seems untenable for (Palou) to continue in any role with (the Claimants),” Palou’s lawyers wrote, according to the filing. “A complete severing of the relationship is in order.” Further, the filing states, Palou’s lawyers “thereby communicated the defendants’ intention not to perform their contractual obligations under each or any of the driving agreement, the promotions agreement and the undertaking letter.”
In an Aug. 23 letter, McLaren’s lawyers responded to Palou’s belief he’d been promised an F1 ride – from a team that was well known to have Lando Norris signed through 2025 and rookie Oscar Piastri through 2024 (before a recent two-year extension) – with one word:
“Baseless.”
This article originally appeared on Indianapolis Star: Alex Palou lawsuit: What McLaren claims it is owed from IndyCar driver
