The former TV presenter is suing police over his 2007 arrest in connection with the death of a man at his Essex home.
In court documents police said the arrest was unlawful because the officer involved had not been fully briefed.
A High Court judge was told Mr Barrymore was claiming the compensation to compensate him for loss of earnings.
Police argued he should get a "nominal" award of £1 at a hearing on Wednesday.
Mr Barrymore was questioned six years after the body of Stuart Lubbock, 31, was found in the swimming pool at his home in Roydon, Essex.
He was arrested alongside two other men. All three were later released without charge.
No-one has been ever been charged over the death of Mr Lubbock, who was found to have suffered severe internal injuries indicating sexual assault.
A trial has been scheduled to take place next summer at the High Court over the unlawful arrest case.
Lawyers said a judge would be asked to decide whether there had been "reasonable grounds" for Mr Barrymore's arrest.
Entertainer Michael Barrymore wants £2.5m in damages from Essex Police for unlawful arrest but the force thinks he should get £1, a court heard.