Krafton, Subnautica 2 developer clash in lawsuit

Krafton CEO Kim Chang-han testified in Delaware Chancery Court that former Unknown Worlds executives Charles Cleveland and Max McGuire were dismissed after they stopped joining the development of Subnautica 2.

Unknown Worlds, a US-based studio known for Subnautica and Natural Selection, was acquired by Krafton for US$750 million in 2021.

Cleveland and McGuire filed a lawsuit in July, alleging Krafton delayed Subnautica 2’s early-access release to avoid paying a performance-based earnout.

Krafton denies this, saying the delay was to improve game quality and not related to compensation.

Kim said the company asked both executives to return to their roles, and offered to extend the earnout period, but they declined.

Court documents included an email from Cleveland stating he had greatly reduced his work hours, and testimony from McGuire that he was not leading Subnautica 2’s development.

The trial continues as both sides present further evidence.

🔗 Source: The Korea Herald

🧠 Food for thought

Implications, context, and why it matters.

Earnout terms in game studio Mergers and Acquisitions (M&A) tilt toward buyer control

Krafton’s Unknown Worlds deal used a $250 million earnout equal to about 33% of the $750 million price 1, which sits above the common 10–30% range for M&A earnouts 2.
In insurance, sellers hit EBITDA earnouts two thirds of the time 3. EBITDA means earnings before interest plus taxes, depreciation, and amortization.
Krafton said the game was not ready, while plaintiffs cited internal files that they say showed readiness 4. This gap exists when deals skip objective metrics like player retention or bug counts that both sides approve upfront 2.
The alleged Project X task force pulled leaders into a fight and raised legal costs 5. Filings do not make clear whether covenants blocked buyer moves that could hurt the earnout 2.

Legal tech and M&A advisors can meet demand for tools that prevent earnout fights

These lawsuits create room for M&A insurers to sell earnout protection, as contingent consideration has hit 40% of proceeds in some deals 2.
Contract and M&A workflow vendors can build dashboards that track milestones, flag risks, and keep audit trails 6. Those features fix gaps from a separate case on AI-generated brainstorming notes 6.
Advisory firms can pitch earnouts built on objective metrics, borrowing from insurance where EBITDA beats revenue on seller hit rates 3.
Private equity plus corporate development teams can hire independent administrators who track then certify milestones, which reduces conflicts when buyers run operations plus payouts.