Why McLaren Racing are part of huge sports law case in 2025

All eyes may be on the ongoing dispute between the Premier League and Manchester City, but is it McLaren Racing who in fact have the most interesting sports law case of 2025?

It has gone under the radar on European shores but an ongoing dispute between the famous racing outfit and former driver Alex Palou will reach a London court in 2025 should mediation between the two parties fail.

Palou backed out of a multi-year deal with McLaren, with the Spaniard insisting he did so because the Woking outfit failed to put him on a path of transition to Formula 1. He instead re-signed with Chip Ganassi Racing.

McLaren, therefore, are reportedly chasing $30m (£23m) in compensation from Palou, who won the 2024 IndyCar Series this year with Chip, for breach of contract and substantial financial losses.

Should mediation be unachievable a trial is set for a London Commercial Court in October with Justice Simon Picken presiding over the case.

Peter Sharp of Morgan Lewis is representing McLaren Racing with loss of sponsorship and prize money, investments in F1 testing with Palou and being forced to pay higher salaries for replacement drivers all key pillars of the case.

And with the quantum totalling $30m, it could be a monster pay out to the Zak Brown-run organisation, who won the Formula 1 Constructors’ Championship in 2024.

What are the basics?

Yasin Patel, sports barrister at Church Court Chambers, explains: “The three times Indycar champion’s decision to U-Turn on his contract with McLaren has spiralled into a long bitter legal dispute.

“McLaren feel particularly let down after being swerved by an incredibly talented driver, who they had already invested $400,000 signing bonus in, and the alleged losses due to deals in sponsorship and F1 testing programmes being lost is certainly a bitter pill for the team to swallow.

“While Palou accepts that he breached his contract, he argues that he did so on the basis that McLaren did not fulfil their implied promise and failed to ensure his transition to a full-time Formula 1 seat – while vastly overinflating and exaggerating its alleged financial losses.

“The resolution of this case could have huge implications for other drivers in F1 and motorsport more widely.”

Palou in the wrong?

“Usually, it is the sporting organisation that decides how and when a relationship ends. This is a rare example whereby the power dynamic has been flipped on its head,” sports lawyer at media and entertainment law firm Simkins LLP, Charlie Edwards, tells City AM.

“However, with Palou admittedly in breach and mediation likely well under way, it is probably not a question of whether he will have to pay, but rather, how much.”

McLaren to set a precedent?

William Bowyer, associate in the sports and entertainment team at Lawrence Stephens, added: “Given the value of the claim, the current profile of F1, the nature of a driver’s role within a race team and McLaren’s position in the sport, this is a hugely important sports law case and will likely set a precedent for similar F1 contract disputes going forward.

“Given the nature of this case, it will be interesting to see what the court considers – or does not consider – to be caused by Palou’s breach of contract and/or what is reasonably foreseeable regarding the losses claimed by McLaren. 

“When a party breaches a contract, the “innocent” party (in this case McLaren) often has a right to an award of damages if they have come into loss as result of the breach. It is important to remember that the purpose of damages (from an English Law perspective) is to put the innocent party in the same position as if the contract had not been breached. 

“Therefore, McLaren can only be awarded as much as the court considers necessary to reach that position. Should the court side with McLaren, drivers would be discouraged from moving teams whilst still under contract.

“However, should the court consider the damages to be far lower than McLaren claims, racing drivers will likely breathe a sigh of relief. Whilst they would still have to pay damages for breaching a driving contract, it may enable them to have greater choice to choose teams based on the opportunities presented to them – if they consider the pros of switching teams whilst still under contract to be greater than the costs they may incur.

“Importantly, McLaren’s dispute with Palou highlights the importance of drivers seeking tailored and sports-specific legal advice before signing any ‘seat deal’ – especially before a decision as big as changing teams.”

So while we are watching what happens with the Premier League and Pep Guardiola’s Manchester City, taking note of whether there’s a solution to the fall out between McLaren and Palou before the February deadline could be key to seeing whether this $30m claim could reach court in October.