Palacios arrived at Stoke from Tottenham Hotspur four seasons ago for a sizeable fee believed to be in the region of around £8million and big things were understandably expected from the midfielder at the Britannia Stadium.
Unfortunately though, the move did not pan out in the manner which either the player or the club would have wanted due to Palacios being troubled by injuries and personal issues.
The current campaign has been a particularly difficult one for Palacios as he has not made a single appearance and it is certain that the Honduran international will leave the Potters at the end of the season.
Coates said in the Stoke Sentinel: "He was such a good player at Wigan and Spurs, where he only lost his place to (Luka) Modric. We certainly thought at the time we were getting a very good player, but for whatever reason it hasn't worked out.
"I know he has had personal problems in the past - his brother was kidnapped and killed in 2009 - but sometimes you just don't know the reason why things don't work out.
"It's a great shame because it has cost us a huge amount of money, but it's also a shame for the player because his career hasn't developed either. We all lost. He did, we did."