Subnautica 2 publisher’s CEO used ChatGPT in failed bid to avoid paying US$250m bonus to own studio head, court hears

A US court ordered Krafton to restore operational control of Unknown Worlds' CEO and extended the earnout period after finding Krafton's removal of studio leadership improper; the earnout is worth up to $250m and Krafton paid $500m to acquire the studio in 2021. The ruling details Krafton's use of ChatGPT-recommended tactics (Project X) to try to avoid the payout, heightening legal and reputational risk for Krafton. Krafton says it disagrees with the decision and is evaluating options while continuing work on the Subnautica sequel.

Analysis

This ruling creates a durable repricing in how markets value contingent consideration and management-protection clauses: expect acquirers to apply a 5–15% haircut to earnout-backed deal valuations and push for clearer operational-control triggers over the next 12–24 months. That repricing will show up as slower deal cadence for sub-$1B creative targets and heavier use of escrow/insurance instruments that shift cash from founder payouts to buyer-side protections.

A second-order effect is accelerated tightening of AI governance in corporate decision-making. Directors and CEOs will face higher legal and insurance friction when AI tools materially influence personnel or M&A strategy — anticipate updated D&O policy language and explicit AI exclusions or endorsement riders within 6–12 months, which will raise effective transaction costs for acquirers who lean on generative models.

Consumer and talent-market reactions magnify the commercial risk: studios perceived as losing independence become harder to retain and monetize, moving product timelines out 3–9 months and reducing early-conversion rates by a low-single-digit to mid-single-digit percentage in worst cases. Near-term alpha will come from picks that benefit from deal flow pull-forward (large, well-governed publishers and professional services/brokers) and from idiosyncratic shorts where governance failure risks are underpriced.

Key Decisions for Investors

• Short KRX:259960 (Krafton) — 3–12 month horizon. Position idea: 1% notional short equity or buy 3–9 month 25% OTM put spread. Rationale: elevated legal/reputational drag and higher cost of studio integration likely to depress free cash flow; target downside 20–30%. Risk: appellate reversal or favorable settlement could negate thesis; stop-loss at +12%.
• Pair trade — Long TTWO (Take‑Two Interactive) / Short KRX:259960 — 6–12 months. Rationale: large-cap publishers with clean governance should capture talent and M&A reallocation; target asymmetric return of +25% on TTWO vs -15% on Krafton for paired exposure. Use size to keep net beta ~0.
• Long MMC (Marsh & McLennan) or WLTW (Willis Towers Watson) — 6–18 months. Trade: buy stock or 9–12 month call spread. Rationale: brokers/reinsurers to capture incremental advisory and contingent-consideration insurance flow as acquirers buy protection and reprice deals; expected revenue upside 3–7% vs baseline. Risk: if claims spike materially, premium tails could compress; hedge with modest protection.