KRAFTON has become embroiled in legal disputes due to conflicts with the former management of its U.S. subsidiary, Unknown Worlds, which it acquired in 2021. KRAFTON recently delayed the release schedule for Unknown Worlds’ popular game "Subnautica 2" to next year and replaced the management team at Unknown Worlds due to claims of negligence in game development. The dismissed former management of Unknown Worlds has sued KRAFTON for breach of contract, stating they were excluded from their duties.
According to the gaming industry, KRAFTON appointed Steve Papoutsis, who previously served as Chief Development Officer (CDO) at its North American subsidiary Striking Distance Studios, as the new representative of Unknown Worlds earlier this month. Ted Gill, the former Chief Executive Officer (CEO) who led Unknown Worlds, along with co-founder Charlie Cleveland and Max McGuire, have stepped down from the management team.
Unknown Worlds is a game development company founded by Cleveland and McGuire in 2001 in San Francisco, California. Specializing in PC and console game development, Unknown Worlds gained a solid fanbase with its underwater exploration game "Subnautica" and the "Natural Selection" shooting game series.
As part of its strategy to target overseas markets and diversify its game intellectual property (IP) and portfolio, KRAFTON acquired 100% equity in Unknown Worlds for approximately $500 million (about 580 billion won) in 2021. At that time, KRAFTON CEO Kim Chang-han noted, “This acquisition will strengthen KRAFTON’s global game production competitiveness.”
KRAFTON stipulated in its contract that following the acquisition of Unknown Worlds, they would develop and release a sequel to "Subnautica", titled "Subnautica 2", within this year and provide a performance bonus (earn-out) worth approximately $250 million (about 340 billion won) to the management and employees upon achieving specific sales targets. About 90% of this amount was allocated to the three former executives, Charlie Cleveland, Ted Gill, and Max McGuire. However, KRAFTON's recent postponement of the "Subnautica 2" release to next year has diminished the likelihood of over 100 executives and employees receiving the bonus.
Some foreign media reported that KRAFTON postponed the release schedule for "Subnautica 2" to avoid paying bonuses. In response, KRAFTON explained that they allocated about 90% of the bonuses with the expectation that the three former executives of Unknown Worlds would actively participate in the development of "Subnautica 2" and demonstrate leadership. KRAFTON stated, “We requested several times that Cleveland and McGuire resume their roles as game lead and technical lead, respectively, but both declined.” They added, “Especially after the failure of the game 'Moonbreaker' released in 2022, we asked Cleveland to focus on the development of 'Subnautica 2,' but he neglected development to concentrate on personal film projects.”
Initially, KRAFTON planned to release "Subnautica 2" as an early access title in 2024; however, due to the absence of leadership from the former management, game development was delayed, forcing them to postpone the early access launch to next year. KRAFTON stated, “Currently, the early access version of ‘Subnautica 2’ is insufficient in terms of content,” and expressed deep disappointment in the actions of the former management, which have betrayed fans' trust.
Documents leaked the previous day reveal that Unknown Worlds' mid-development milestone review for "Subnautica 2" concluded that the new work lacks the quality and market impact necessary for IP expansion.
In contrast, the former management of Unknown Worlds claims that they were ready to showcase an early access version of "Subnautica 2." Charlie Cleveland stated on X, “I have filed a lawsuit against KRAFTON, and details will soon be made public,” adding, “Since ‘Subnautica’ is my lifelong achievement that my development team and I poured our hearts into, I will not voluntarily leave this project or team.” Released in 2018, "Subnautica" is a hit title for Unknown Worlds, selling over 6 million copies worldwide.
Cleveland further clarified, “The claim that the three of us, including myself, the former executives, were trying to monopolize the performance bonus is completely untrue. We have shared profits with our team members in the past, and this was also the case when selling the studio.”
Meanwhile, KRAFTON stated through a public announcement the previous day that they have not officially received a complaint from the U.S. court and will re-announce specific details once they receive the complaint.
Industry experts evaluate that KRAFTON, which has aggressively invested in and acquired overseas game development companies over the past few years to secure new growth engines and diversify its IP, is now facing 'management risks' due to subsidiaries scattered around the world. Given that each development company has its own corporate culture and language, there can be disagreements with headquarters during the new project development process after being absorbed by KRAFTON. If these conflicts are not resolved, it could lead to wasteful disputes and lawsuits, similar to the Unknown Worlds situation.
In addition to Unknown Worlds, KRAFTON has recently acquired equity stakes in several companies, including ‘EF Games’ based in Madrid, Spain, ‘Lukas Games’ located in Texas, USA, and video game startup ‘Wolfhouse Games’ situated in Montreal, Canada.
KRAFTON has announced its goal to achieve 7 trillion won in revenue within five years, and it plans to continue aggressive mergers and acquisitions (M&A) and local investments in the global market this year. CEO Kim Chang-han stated in an interview with Bloomberg earlier this year, “We plan to invest at least 200 billion won in more than 12 promising external game development studios this year.”