Subnautica 2 Studio Founders Go To War With Krafton Over Controversial Delay And Firings In New Lawsuit [Update]

Weeks after their sudden and mysterious dismissal from Unknown Worlds by parent-publisher Krafton, the Subnautica 2 studio’s cofounders have filed a lawsuit for breach of contract. At the center of the complaint are allegations that Krafton tried to sabotage the Early Access release for one of Steam’s most wishlisted games in order to avoid having to pay a $250 million bonus. “In the name of its bottom line, Krafton has thrown its promises out the window and ripped the game from the hands of both its creators and its community,” the lawsuit claims.

Those and other allegations are contained in a new 58-page lawsuit, a public version of which was filed in Delaware Chancery Court on July 16 on behalf of ousted Unknown Worlds cofounders Charles Cleveland, Adam “Max” McGuire, and Edward “Ted” Gill (the group’s legal team provided Kotaku with a copy). It details an alleged ramping-up of efforts by Krafton to delay Subanutica 2‘s planned 2025 release in order to avoid triggering provisions from the October 2021 sale of the studio that would lead to a $250 million bonus payout if certain sales goals were met through early 2026.

According to the lawsuit, the terms of that agreement prohibited Krafton from firing any of the founders without cause or interfering in the studio’s business in any way that might impact that payout. Unknown Worlds 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” as long as at least one of the cofounders remained employed there.

The founders claim the business relationship didn’t begin going south until earlier this year when projections for Subnautica 2‘s sales were shared with Krafton management, one of which showed them hitting the targets required for the $250 million payout. “During the first week of April 2025, Unknown Worlds’ publishing colleagues in Krafton’s El Segundo, California office traveled to Korea to finalize the marketing and advertising strategy for Subnautica 2’s launch,” the lawsuit reads. “Upon their return, the El Segundo team—Krafton employees—reported to Gill that Krafton’s leadership was not focused on a successful launch, but instead on how it could convince Unknown Worlds to delay the game.”

Things came to a head in a May 2025 milestone review, portions of which leaked online last week, in which Krafton argued the game needed more content and development time against the recommendation of the founders. From there, the founders alleged that Krafton began trying to sabotage the launch by locking down all publishing resources, failing to respond to emails with third-party partners, and claiming control over the final release date decision.

Hello everyone,

The saga continues. In my previous posts, I mentioned that there would be more to come. Well today, you can finally read the official complaint the original Unknown Worlds shareholders have filed against Krafton.

It’s unfortunate we are here in this situation…

— Charlie Cleveland (@Flayra) July 16, 2025

“One of Krafton’s El Segundo publishing employees reported to Gill that Krafton Headquarters told all Krafton teams to stop all creative tasks related to Subnautica 2,” the lawsuit reads. “The employee’s supervisor even demanded that he and his team cease communication with Unknown Worlds altogether.”

Then in June, according to the lawsuit, Krafton tried to get Cleveland, McGuire, and Gill to take a lower payout while also claiming that the founders were failing in their contractual obligations to the company. “On June 25, 2025, Krafton’s Head of Corporate Development told Gill that Krafton’s plan was to remove the Unknown Worlds board and fire the Founders,” the lawsuit reads.

“She warned Gill that ‘the lawyers are ready to go.’” They were fired roughly a week later, with termination letters from Striking Distance Studios CEO Steve Papoutsis, who has since taken over Unknown Worlds, blaming the founders’ “intention to proceed with a premature release of Subnautica 2.” According to the lawsuit, the firings were made “without cause,” and Krafton even went so far as to offer them their “post-termination payments and benefits” for being terminated “without cause.”

The lawsuit concludes:

In short, Krafton flagrantly breached both the letter and the spirit of the promises at the very core of its agreement to purchase Unknown Worlds. 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.

Asked for comment on the allegations, a spokesperson for Krafton provided the following statement:

Krafton’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

The founders’ side of the story comes after weeks of vague statements on Reddit and confusing press releases from Krafton, who has argued that the founders were fired for failing to get Subnautica 2 ready for a successful Early Access release. In particular, the leaked milestone review points to concerns that a lack of biomes and story content would result in the game failing to meet player expectations for a sequel. It’s denied that the prospective payout, 10 percent of which was due to some of Unknown Worlds’ roughly 100 developers, had anything to do with the management shakeup.

Caught in the middle are those working on the game who still need to deliver it, one way or the other. With Subnautica 2 now coming out in 2026, Krafton has promised employees that it will extend the bonus payout window to make up for the delay as well as advance them money from next year’s profit-sharing pool, Bloomberg reported. It’s unclear what damage, if any, has been done to the game’s prospects among fans left trying to make sense of who to believe and who to support. The Subnautica subreddit has been a rollercoaster ride of players arguing over boycotts vs. patience as they wait for all the facts to come out, and for the eventual release of the game to hopefully succeed.

Update 7/16/2025 4:09 p.m. ET: Added response from Krafton and link to lawsuit provided by Charlie Cleveland.

Update 7/18/2025 8:09 a.m. ET: Added new comment from Krafton.