What the hell is going on with Subnautica 2?

I write about video games for a living, so it’s within reason to assume I could, say, explain what the headline “Bombshell judgment demands Krafton immediately reinstate ousted CEO and return his authority over Subnautica 2” means. And, while the short answer is “greedy billionaires” like it always is, there’s just so much going on with the story behind Subnautica 2 that the short answer doesn’t even come close.

The legal drama surrounding the release of Subnautica 2 has been going on for about a year now. Every couple months or so, I try to understand the flood of articles that follow each new development in the story. I have been … less than successful. All of the talk about court filings and the rampant accusations back and forth make my eyes glaze over and has basically killed any interest I had in Subnautica 2.

But there’s an end in sight (to the court case, at least) and some legally backed-up findings now. So, let’s take that headline version of this ridiculously complicated story and unpack it together, starting with the history of the players involved.

Unknown Worlds Entertainment

Unknown Worlds Entertainment, the studio behind Subnautica and Subnautica 2, was founded in 2001 by Charlie Cleveland. Early on, it was responsible for a Half-Life mod that was basically an entirely new game called Natural Selection.

In 2006, Max McGuire joined as a cofounder. Also in 2006, Unknown Worlds Entertainment put out a casual sudoku game that was basically just a way to generate money for the development of Natural Selection 2, a standalone version of their popular mod.

Natural Selection 2 came out in 2012. It sold fine and it made UWE money. Their next game, Subnautica, was announced in late 2013.

Subnautica

Subnautica is a mostly underwater, survival action game. The earliest playtests started in 2014, but the official release wasn’t until 2018.

Also in 2018, Unknown Worlds Entertainment added Ted Gill as President and, later, CEO. Let’s just get this out of the way so I can stop thinking about it: Yes, the last name of the CEO of the studio behind the underwater game is Gill. It’s just one of those coincidences you have to accept.

Subnautica was well-received and it sold a little over five million copies in its first two years. In 2021, a spinoff (mostly a sequel, but not technically a sequel I guess?) called Subnautica: Below Zero came out. It was also well-received.

All of this is just to say: Subnautica is good, it got a not-sequel that is also good, and a full sequel to Subnautica would basically be a way to print money.

Krafton

Unknown Worlds Entertainment has had various investors over its 20-plus year life. None of them made any headlines, though, and, by 2021, the investors with a controlling stake, a Chinese company named Perfect World, had sold its shares back to UWE.

Meanwhile, in South Korea, Bluehole Studios (later just Bluehole and then, even later, PUBG Studios) was a game studio originally focused on MMORPGs. After an uneventful first decade or so, Bluehole reached out to a game modder named Brendan “PlayerUnknown” Greene to develop one of his mods into a full game. That game became the global sensation PlayerUnknown’s Battlegrounds and was released in 2017.

After the wild success of PUBG and a healthy investment from the Chinese company Tencent, Bluehole spun up a parent company called Krafton to handle the publishing side of things and to act as a holding company for the various studios Bluehole was buying up.

In 2019, Krafton started Striking Distance Studios with Glen Schofield and Steve Papoutsis. Striking Distance’s first game, The Callisto Protocol, came out in 2022. It didn’t do great.

During development, Schofield tweeted a glorification of crunch culture, deleted it, and then apologized for it. In 2024, Schofield opened up a bit more about the dev cycle, saying that Krafton had forced them to release about three months early and abandon parts of the game.

In 2023, when The Callisto Protocol didn’t perform as well as Krafton expected, the layoffs started. Glen Schofield departed as CEO in 2023 and Steve Papoutsis took his place. By 2025, almost all of the devs had been let go. 

Krafton and Unknown Worlds

Krafton purchased Unknown Worlds Entertainment in 2021.

At the time, Unknown Worlds cofounders Charlie Cleveland and Max McGuire were working on a game called Moonbreaker set in a universe created by Brandon Sanderson. If you don’t recognize that game, you’re not alone — it doesn’t even have enough reviews to qualify for a Metacritic score.

But Krafton was all-in on Unknown Worlds to the tune of $500 million. Game Developer even cites them saying they wanted to leave leadership in place after the acquisition to preserve their sense of identity.

What Krafton really wanted out of the deal was — obviously and justifiably — a Subnautica sequel and the all-but-certain cash that would bring. That sequel, unsurprisingly titled Subnautica 2, was officially confirmed in April 2022 with an expected release date in 2025. By mid-2025, it was the second-most-wishlisted game on Steam.

According to Bloomberg, Krafton was also offering a $250 million bonus if Unknown Worlds hit certain revenue targets by the end of 2025. Leadership at Unknown Worlds planned on sharing that bonus with everyone at the company in the form of “bonuses ranging from hundreds of thousands of dollars to seven figures.”

The firings

In July of 2025, however, Krafton announced that Subnautica 2 would be delayed to 2026. This delay was against the wishes of Unknown Worlds leadership. Krafton said the game wasn’t ready and releasing it in its current state would damage the brand. Unknown Worlds said that the game was ready for early access and was set for the August 2025 early access launch.

Around the same time, Krafton fired Unknown Worlds founders Charlie Cleveland and Max McGuire, and CEO Ted Gill. Krafton appointed Steve Papoutsis (from Striking Distance Studios, above) as the new head of Unknown Worlds (but he also didn't stop being the Striking Distance CEO?).

Now, the more cynical amongst us might note that delaying the game and firing the heads of the studio would be a pretty hamfisted, moustache-twirling way for Krafton to not pay out that massive $250 million bonus. It’s the sort of unsubtle, nuanceless, inhuman(e) scheme you’d expect ChatGPT to come up with. This is foreshadowing.

The lawsuit

Cleveland, McGuire, and Gill sued Krafton for breach of contract. They alleged that the firings and delay were a way for Krafton to avoid paying out that bonus, and that things like firings and delays were explicitly forbidden in the contract they had with Krafton.

In August, Krafton responded to the lawsuit and threw around some wide-ranging accusations about why the trio were fired. At first, Krafton had said they were fired because Krafton felt Unknown Worlds were rushing the game into early access. Then, Krafton switched tactics to saying, basically, the founders had pocketed the profits from the sale of the studio and then just abandoned Subnautica 2.

“We are deeply disappointed by the former leadership’s conduct, and above all, we feel a profound betrayal by their failure to honor the trust placed in them by our fans.”

and

“Cleveland and McGuire abandoned their roles as studio-wide Game Director and Technical Director to focus on their personal passion projects and quit making games for Unknown Worlds entirely. And Gill, who remained, focused on leveraging his operational control to maximize the earnout payment, rather than developing a successful game.”

According to Krafton, the trio had become desperate to get that payout. Krafton denied everything that the trio had claimed up to that point.

Pre-trial

For good measure, Krafton also accused the three of stealing information on their way out the door. A court filing from September has Krafton accusing McGuire and Gill of downloading huge amounts of data related to both Moonbreaker and Subnautica 2. Their plan, Krafton said, was that Cleveland, McGuire, and Gill would publish Subnautica 2 independently, cutting Krafton out of the loop.

The three answered with a pre-trial filing of their own in November. This round of allegations seemed to disprove the claim that Unknown Worlds was rushing the game into early access, and pinned the blame for the delay and takeover on Krafton CEO CH Kim.

You see, Kim’s contract as CEO of Krafton is up this year. As mid-2025 rolled around, Kim became concerned that a $250 million payout would be a big hit to Krafton and that paying it out would make him look weak.

The November filing claims that Krafton, under Kim’s leadership, spun up an internal taskforce called Project X with the goal of either killing the bonus or taking over Unknown Worlds. Project X included withholding marketing resources and laying the groundwork to fire Unknown Worlds’ leadership.

This filing also claimed that Kim had turned to ChapGPT for help in getting out of paying the bonus.

The trial

Which brings us up to this week and the court’s findings at the conclusion of the trial. Basically, the judge found that Cleveland, McGuire, and Gill’s version of events was true. Including the ChatGPT part.

When Krafton internal research showed that Unknown Worlds was on track to successfully earn the $250M bonus, Kim started looking for a way out. Krafton’s legal team told Kim it was dangerous to try anything, so Kim asked ChatGPT. ChatGPT also told Kim the bonus would be “difficult to cancel,” but Kim kept pushing.

And that’s when ChatGPT came up with Project X. It told Kim to frame the takeover as being about trust and quality. ChatGPT, apparently, even wrote the statement saying as much that Krafton released when it fired the Unknown Worlds leadership. 

The judge noted that, while the trio did, in fact, download huge amounts of the game’s data, they did so to protect the game in response to the takeover, not as some ploy to steal the game for their own benefit.

Because it was actually true that the founders had reduced their roles in the game’s development. Cleveland had changed titles to “Franchise Creative Director” to pursue a movie adaptation and McGuire was now “Special Projects Director,” focusing on porting the games to mobile and VR. Rather than abandoning the project, they’d just taken new roles and voluntarily taken pay cuts (down to a measly $100,000 per year) to free up resources for the rest of the team. 

The fun part of the ruling is that Krafton now has to reinstate Gill as CEO and extends the deadline for that $250M bonus out to September 2026 (with the option to extend it further to March 2027). The ruling does not reinstate Cleveland and McGuire.

So now what?

On Tuesday, Steve Papoutsis, acting and now former(?) CEO of Unknown Worlds told the team:

Thanks to your dedication and talent, we've added more story chapters, built new creatures, and created new biomes along with many other features. With this significant progress, we have passed KRAFTON's milestone review last week and are now ready to start our open development journey alongside our community. We have full confidence that we have reached a point where we can deliver an experience our players will love.

We look forward to working with Ted Gill to support a smooth transition and work toward a successful launch. Our priority is getting this game into the hands of the community that has been eagerly waiting for it—and that means honoring the work you have already done to make that possible.

That the game just so happened to pass the final benchmarks for Krafton the same day they were slapped down in court is, I'm sure, just a wacky coincidence.

And now we're caught up. This article was basically my way of making sense of roughly a year of legal mud-slinging and bringing you along for the ride. I don’t know that there’s even a take to be found here because, let’s be honest, no one comes out of this smelling like roses.

Krafton is obviously the villain — Krafton CEO CH Kim is up there, too —  in its role as a multinational megacorporation buying up studios, rushing (or delaying) dev cycles, and driving layoffs. This meatgrinder approach to creativity is something we’re against here at Rogue (so brave).

But it’s also hard to spare a tear for the C-suite trio at Unknown Worlds even if they were fired as part of some Machiavellian cost-cutting scheme. Yes, getting ones bag is (usually) a worthy endeavor, but selling your indie darling of a studio with 100-plus employees for half a trillion dollars goes beyond mere bag-getting. 

Those employees are the victims here — all of the devs, artists, and creatives at Unknown Worlds working on Subnautica 2. You know, the people doing the actual work who don't get their names on a big, flashy lawsuit. The people who will inevitably get fired when the game doesn’t perform according to corporate projections.

Because, for me at least, the accusations, allegations, legal drama, and general, all-around greed on display has soured everything about the game. Maybe Subnautica 2 will be great, but, frankly, no level of quality will wash away the stink of the past year’s nonsense. And everyone doing the actual work on the game will suffer for it.