Unknown Worlds founders Charlie Cleveland, Max McGuire, and CEO Ted Gill filed a lawsuit last week alleging that publisher Krafton intentionally obstructed and delayed the development of Subnautica 2 in what they describe in the complaint, which was unsealed to the public and reviewed by Aftermath on Wednesday, as the company's "desperate efforts to avoid paying the earnout, and its flagrant contractual breaches in pursuit of that goal."
Unknown Worlds is responsible for Subnautica, the 2018 underwater survival game that, by all measures, was a hit. Krafton, the major South Korean publisher known for PUBG Battlegrounds, acquired Unknown Worlds in 2021 for $250 million, plus a bonus of $250 million that would be paid out by meeting certain milestones. Cleveland, McGuire, and Gill were fired in July before Krafton delayed the game into 2026, thereby putting the bonus payout in jeopardy. Bloomberg reported last week that Unknown Worlds leadership intended to share the money with the studio's roughly 100 employees, which would have earned staff "hundreds of thousands of dollars to seven figures" each, per Bloomberg's report. Krafton, in a statement published on its website, said the fired executives "abandoned the responsibilities entrusted to them."
Cleveland, McGuire, and Gill disputed that, and announced they were filing a lawsuit, the details of which are now public. In it, the executives lay out the timeline that claims Krafton was worried about Subnautica 2's projected success and how much money the company would have to pay out. "As momentum for Subnautica 2 was building, the reality of what this would mean for the earnout hit Krafton. When that happened, everything changed," lawyers wrote in the complaint.
Several Unknown Worlds' "publishing colleagues" from Krafton's El Segundo office met with Krafton in South Korea to "finalize the marketing and advertising strategy" in April, and when they returned to the United States, told Gill that "Krafton leadership was not focused on a successful launch, but instead on how it could convince Unknown Worlds to delay the game," per the complaint.
"The El Segundo colleagues informed Gill that Krafton’s legal team was combing through the agreements looking for any opening to terminate the Founders if they proceeded with the planned [redacted] release," lawyers wrote. "The El Segundo colleagues told Gill it was clear that Krafton was aiming to avoid paying the earnout."
Lawyers write that Krafton “engaged in a months-long campaign to delay Subnautica 2’s release,” including that the company “pulled key marketing materials, refused to follow through with crucial partnerships, and reneged on long-standing commitments to handle important prelaunch tasks.” The 58-page lawsuit, filed in early July in the Delaware Chancery Court, goes into detail on what the fired executives call an “obstructist agenda” — Krafton allegedly stopped paying vendors, which impacted Krafton’s marketing support, like trailers and a PC Gamer magazine cover; pulled localization help, back-end services like “analytics and server infrastructure,” legal support for contract review, and policy review for the game’s terms of use. The executives claim, via one Krafton employee in the El Segundo, California, office, that Krafton employees were instructed to stop “all creative tasks related to Subnautica 2” and to stop communicating with Unknown Worlds.
In May, the executives allege, Krafton “advanced the new company line” that “Subnautica 2 was not ready.” That included a milestone review, which has since leaked online, in which Krafton described the game as lacking polish and “market impact.” It showed biomes being removed, fewer creatures, and cut content — signifying “the need to reassess the timeline and roadmap,” according to the leaked documents that Krafton has since confirmed as real. The executives, in the lawsuit, characterize this review as Krafton’s “obstructionist tactics,” saying that the people who did the review were not experts in survival games nor releasing early access games. The executives pushed back the feedback, according to the lawsuit, and showed that playtest data from community members “unequivocally confirmed that the game was ready to go.” (Earlier in the lawsuit, lawyers call out Krafton’s previous early access game, inZOI, as launching with “less content and being less developed than Subnautica 2; allegedly, Krafton executives expected Subnautica 2 would “easily double” inZOI’s 1.1 million sold copies “with proper publishing support.”)
Krafton began sending letters — “an intimidation campaign,” per the complaint — to the founders on June 10, “falsely accus[ing] the Founders of failing to fulfill their contractual responsibilities and violating their fiduciary duties.” On June 18, according to the document, a Krafton executive met with Gill to “attempt to get the Founders to accept a lower earnout.” The executives claim the offer “did not allow them to share the earnout with the full team, so the Founders declined.” Negotiation continued through late June before Krafton fired the three executives and removed them from the Unknown Worlds board of directors. Steve Papoutsis was named CEO of Unknown Worlds and Krafton announced the game would be delayed until 2026.
“Krafton flagrantly breached both the letter and the spirit of the promises at the very core of its agreement to purchase Unknown Worlds,” lawyers wrote. “It promised to leave creative and operational control in the hands of the Founders. Promise broken. It promised to consult with the Founders before taking any action that could harm the earnout. Promise broken. It promised not to take any action with the primary business purpose of frustrating the earnout. Promise broken. And it promised not to terminate the Founders without Cause. Promise broken.”
The lawsuit also details continues in detailing what it describes as Krafton’s attempt in “harming Unknown Worlds’ relationship with its fan community” by posting on the game and studio websites “a statement apologizing for Subnautica taking ‘far longer than any of us ever intended’ and making allegations about Cleveland and McGuire’s alleged roles.” It also includes the community response to the public dispute, including headlines, YouTube screenshots, social media posts, and Reddit threads commenting on — and worrying about — the executive firings and subsequent delay.
The executives say Krafton breached their purchase agreement contract and want the court to order the company to pay up the earnout fee, reinstate the founders’ jobs and board of directors seats, and pay other damages. The purchase agreement signed by both the fired executives and Krafton allegedly made it so the founders would “maintain operational control of the Group companies in all material respects, including (for both existing and new products) product roadmap, launch, planning, partnering, budgeting and employee matters,’ so long as at least one of the three of them was still employed.”
On Tuesday, Bloomberg reported that Krafton intends to “extend the schedule for a potential bonus payout” for Unknown Worlds. Forty or so Unknown Worlds employees will be “eligible to share a $25 million bonus” if revenue goals are met by the end of 2025, “with a possible short-term expansion,” per the report. Bloomberg sources said the schedule for that $25 million bonus has been extended a year, and that Krafton will “advance a portion of the studio’s projected 2026 profit-sharing bonus pool,” something separate from the $25 million bonus, to all employees in 2025.
In a comment to Aftermath, Krafton said that the company's "decisions were made to ensure Subnautica 2 is the best possible game and lives up to fan expectations. Releasing the game prematurely with insufficient content, falling short of what fans expect in a sequel, would have both disappointed the players — who are at the heart of everything Krafton does — and damaged the reputations of both the Subnautica and Unknown Worlds brands. While we are disappointed that Charlie, Max, and Ted have filed a lawsuit seeking a huge payout, we look forward to defending ourselves in court. In the meantime, Krafton remains focused on what matters: delivering the best possible game as quickly as possible to Subnautica’s fans."
You can read the lawsuit below:
This story has been updated with more details from the lawsuit and a statement from Krafton.
