Idiot CEO Used ChatGPT to Try to Screw Over Subnautica Creators

Transcript

This transcript was generated automatically and may contain errors — the audio is the record.

0:00:00 Clip: Thank you.

0:00:03 Jenessa: Going to expose us to a lawsuit and reputation risk. Like, let it go. So he turns to ChatGPT.

0:00:17 Thomas: CEO, you are getting business advice from ChatGPT. It. That's And you are doing unlawful contract stuff because the computer told you to do that. I would would see the pants off this guy. There's no way this guy isn't getting sued like This is episode 1246. I'm Thomas. That over there is Jenessa. How are you doing?

0:00:26 Jenessa: The advice of legal I doing great. I got a weird one for you today.

0:00:43 Thomas: Weird one. A good weird weird one. Ooh,

0:00:47 Jenessa: I got video games and contract disputes and dummies trying to use AI to beat their lawyer.

0:00:54 Thomas: To beat their own lawyer? What? Oh.

0:00:57 Jenessa: Sometimes people don't listen to their own lawyer.

0:01:00 Thomas: Boy. Wow. That does sound promising. I'm excited for this. Okay.

0:01:07 Thomas: Is that all we get to go on? How are you doing today? All right.

0:01:10 Jenessa: Good. Sun came out about two seconds ago, so that's nice. You and Dan might go see, oh God, what's the movie? I loved the book so much. It just came out. Ryan Reynolds, space.

0:01:24 Thomas: Gonna do an sio about that one I gotta see that too is that out is it officially out out oh I'm excited

0:01:28 Jenessa: It's out. It can't believe I can't remember the name of it. I loved the book so much. Project Hail Mary. Yes.

0:01:35 Thomas: Hail mary that's it I

0:01:37 Jenessa: Oh, my God. The book was so good. I am very hopeful for the movie.

0:01:41 Thomas: Don't know anything about it. I can't wait.

0:01:43 Jenessa: Oh. It was very good.

0:01:44 Thomas: Don't know a lot of things apparently, including this lawsuit about the video games that if it's a video game, I don'T play, then I just know nothing. If I go from, I turn into like a total, just normie. That's like video. What are the dang video games you guys play in your kids? But if it'S a video Game, I do know I'm like more I'm a pro, you know, I'M just like super into it. I'm just, you know what I mean? I'm not like a general purpose gamer very very specialized well one oh that's the game okay okay so this so the studio we got three different names of things right okay all right well I'm sure you're gonna set it all straight for us uh don't we just take our first break which you can avoid patreon .com slash law and get the goodies the lot awful movies might even be out right now and you can aussi skip the adds that you might hear right now otherwise so we'll tak a break and then we'll we'll get gaming get get our game our game boys we're gonna game you and I let's do it

0:02:03 Jenessa: Of course. Well, you might want want to check this one out. I loved it. Subnautica is the game. Yes. We have many

0:02:46 Thomas: Tell me an uncool old man apparently what game you're talking about and what any of this is oh

0:02:52 Jenessa: Okay, so we've got this developer, Unknown Worlds. Made a couple of different games, but they'll be most famous for Subnautica. Pretty well, really well, actually, especially especially for a small developer. It's basically a kind survival, very underwater, it's really unique kind of game, unique take on the survival type game. Are purchased relatively recently by Krafton, a video game publisher. So basically Unknown Worlds, they had a lot of great great things going for them. They wanted more marketing. They wanted to hit an international market. This was a perfect company to do it, they thought. And then things go south pretty quickly. Working on Subnautica 2 right now, and they were going to have an early release before everything blew up. So here? We are in the court of chancery of of the state of Delaware, I don't, they just still have to be so old-timey about everything.

0:03:57 Thomas: I don't know yeah what's a chancery do

0:03:59 Jenessa: The life of me, I do not know. Um, know, what is funny, this will read like the judge is a gamer. It is very fawning over the game company, but is entirely possible. Think one possibility, a lesson here is for lawyers, when you're writing, for witnesses, when you're doing a deposition, think to yourself that it's possible a judge is going to borrow your language. I have seen this before, and I think it might be happening here. When you tell a really compelling narrative, when you take something that's confusing and complicated, and you distill it into just that one perfect phrasing, man, is it tempting for a judge to just copy paste

0:04:01 Thomas: They play a lot of games are they big gamers maybe the judge is a gamer okay yeah

0:04:44 Jenessa: The way you said it. And

0:04:45 Thomas: They pretty much always do that I mean they're getting they don't you think about how many different cases they have I think I kind o knew this but I really saw it with obviously the OA stuff where it's like, oh, they just will take somebody's write -up and might depend on what motion they're ruling on too. They not even necessarily be endorsing it, but sometimes it can really read like they are endorsing a particular write -off. But also I think sometimes they do just endorse a particular write-up of facts if they find it compelling. So yeah, it's really interesting.

0:05:16 Jenessa: So in some ways, it feels at first as you're reading it like, man, this guy really, really likes these guys. But then I realized pretty quickly like, this is is relevant he's setting up the talent of these creators sometimes against their own favor like these guys are the special sauce that's what crafton paid for when they bought the company like is why I'm talking about how great you are it's relevant in both directions so

0:05:39 Thomas: Well don't even understand how that would apply but okay I don't have enough facts go ahead continue hmm

0:05:49 Jenessa: We go um we got fortis advisors llc v crafton what the heck happened here here, Fortis Advisors, not a video game anything, they're representatives of the former shareholders of Unknown Worlds Entertainment. Basically, it's this outside company that handles mergers and acquisitions. I think what probably happened is they are the ones who handled this acquisition. This acquisition contract goes south, it is going to be either they are harmed inherently they probably stood to gain some of the money from this acquisition, or possibly part of their contract is, you wrote an acquisition contract for us. If that goes south, you have to defend me.

0:06:34 Jenessa: Could be one, could be the other. Worlds at the time of the acquisition had 43 employees. They had a ton of money, but, small you fry in terms of like you'd probably want outside counsel so taking a guess that's what's going on here you have to be a harmed party to be the plaintiff so unknown world's not the plaintif the fired employees are not the plaintiff fortis advisors are the plaintiff um between the lines I think they stand to gain some of the contracted money in this and are probably best situated to represent people here yeah

0:06:33 Thomas: Interesting hmm sure huh huh oh interesting okay do

0:07:14 Jenessa: Here's what's going to happen we get a ton of really like insider baseball on how this company came to exist um it is going to tell us like why these characters are so valuable um

0:07:27 Thomas: You mean game characters or do you mean characters isn't

0:07:29 Jenessa: Individuals people human people. Like the first 40 pages of this are like totally readable. If you just want to, or you're just like super curious about how did this game company come to exist? How did these games come to be developed? It's just cool. The document is, you know, public. I'll post a link in the show notes. Check it out. Very readable, not legalese for the whole first half is just a story. We got a couple of people to know about. Charlie Cleveland, he's our design and creative guy at Unknown Worlds. Max McGuire, he is your programming implementation of Cleveland's ideas. Ted Gill, he will be your president of the company, later CEO, pretty much the same same businessy stuff. And Krafton, that's a South Korean video game publisher. They just bought Unknown Worlds. They're handling the international marketing. And the CEO of Krafton will come up later, Chang Han Kim. Cleveland, what's his deal? He's been obsessed with video games his whole life. He makes his first game as actually a mod of Half -Life. Does really well. Mods, not a sustainable business model, because you have some weird copyright stuff that goes on with video game mods. On a huge tangent, but we should totally talk about it sometime.

0:08:56 Jenessa: Of the things he does with this, he pioneers this early access model. Model uh some people love it some people hate it you basically release a game when it is not done with I are pitching it here as their secret sauce what makes their game company so awesome um

0:09:07 Thomas: That guy is the responsible for that Doesn't everyone hate that? And it's different than like simply beta testing, right? Because that's always existed, right.

0:09:23 Jenessa: Testing I think is typically thought of as you hire people to work at your company and like they're insiders oh

0:09:30 Thomas: They'll do, sorry, open beta. They'll do an open beta, yeah. So it's like an open data, but it seems to be something different though, because it's open betas have existed forever. And this seems to me to be a new thing that's happening to me.

0:09:33 Jenessa: Well so it's kind of that I impression of open beta is like it's free usually so access you pay for it but you pay way less than what full price will be and when it's fully released you're not going to pay again describe it as this is a symbiotic relationship between the developer and the players and players are collaborating on the project it gives them a sense of ownership and enthusiasm and the people who like it I yeah I don't know he thinks it's awesome I sometimes find it annoying but

0:09:46 Thomas: Yes, yeah, it's what's in it for the company actually? Because if they're paying are paying less is oh

0:10:16 Jenessa: It's like a giant beta test you're Getting early player feedback of like hey I love this this isn't work it's It's like a giant bug test instead of like 10 people bug testing. It's

0:10:28 Thomas: So it's like a way instead of people doing beta testing for free you can charge them and still they're doing beta testing that's what it is okay no

0:10:36 Jenessa: I there's must be something I'm missing or it's a little bit like, oh, people will pay for.

0:10:39 Thomas: I think that is it I think it's a kind of a marketing gimmick yeah

0:10:43 Jenessa: Yeah, yeah. He's allegedly in this document, the pioneer of this model, and it supposedly works really well. There's a logic to like the game's not even done yet and you completely reshape how it works the players but sometimes I'm playing subnautica and dan will be like oh what about this thing and I'm like what and he played it in early access so he's like oh I guess they took that out I guess that's not even a thing anymore um

0:11:10 Thomas: Interesting yeah I don't like it I like there being one version of a game I was really looking forward to hades 2 forever and then they're like well it's out for testing forever that I don'T testing. And I was like, but I don't, I just get, tell me when it's done. I don'T, just give me a game.

0:11:24 Thomas: It used to be a plastic cartridge that I had to blow in. There was no updating those early access. You just got it.

0:11:19 Jenessa: Just be done right I no fixing it later

0:11:32 Thomas: If it was broken, it, that was the game. It was called Nintendo.

0:11:32 Jenessa: You glitch was the glitch and it was yeah and this is the Nintendo model. It's going to be right the first time and that's the end of it.

0:11:44 Thomas: It won't. And it's the, you're, you know, if you're screwed, there were games that just didn't work. Like there'd be a glitch that's like, Oh, you just can't beat this part. I'm glad we're not there I guess but anyway okay oh

0:11:54 Jenessa: Oops. True. Yeah. Okay. So he does and it's going great. This guy, Maguire, joins him who is like programmer extraordinaire. They make Natural Selection 2, the second game. And he's like, hey, let's make our own engine so we can actually sell this thing. So it's not a mod of somebody else's game um great it launches and months later uh sandy hook elementary school shooting happens and was deeply affected and challenged himself to make a game without guns yeah isn't it that's so nice so he's like all right you know we just made two first person shooters I'm gonna make something that is like a really fun challenging game and no guns How are we going to make this intense without that?

0:12:26 Thomas: Okay Oh what a nice story all

0:12:42 Jenessa: An example of that, like, wow, this is going to seem really fawning, but there's a point to this. here'S a quote from the decision. Developing the game took great attention to detail. McGuire synthesized into code research on sunlight absorption in deep ocean, building a realistic custom lighting system. Meanwhile, Cleveland spent countless hours creating an ecosystem populated by creatures and plants that interacted with the player's flashlight. Through Cleveland's vision and McGuire's technical prowess, the game became a stunning, immersive experience. Players were transported to a vibrant alien ocean teeming with life, from bioluminescent flora to colossal sea creatures, a place where light filtered through water to reveal a world that felt startlingly real. Why is this in a court decision that's what crafton paid for they paid for these two guys who are like the dream team who do this magical amazing stuff it

0:12:41 Thomas: Yeah okay

0:13:42 Jenessa: Feels irrelevant until we get to oh they're mad if they're not getting they're going to try to allege they're not getting what they paid so um the one hand it's like no these guys are really good good at what they do. On the other hand, it's like, and you pay a lot of money for what they do. And so it matters if you get what you paid for. The game is huge. Uh, this is where you're going to be so mad. It releases for early access in 2014. It full releases in 2018. So like, yeah, years, years of like, you paid less for it. So how mad can you be?

0:14:12 Thomas: I I don' understand it but okay that's it I guess that's how it is for people some people like it

0:14:21 Jenessa: Hey, um, it remains the studio's evergreen ip it continues to drive significant revenue years after its release um of uh between subnautica and there's Subnautica below zero which is like another standalone game um sold 17.5 million copies over 300 million gross revenue like that's huge for a company that like recently had 43 employees that's really big much I sure they had other people working like I'm sûre mcguire didn't write all of it um but you know you had two big leads basically okay they need a business guy they hire Ted as their CEO in 2018 big game fan he worked at a different company down the street but just like knocked on their door to introduce himself and now they're buddies like this whole thing is like their best friend's story so he reaches a fork in the road in his career years later and joins the team so you got your your magical three working together now you got a business guy creative guy developer uh guy they're all working together it's all going great um that second game below zero they hire this guy david kalina and what basically starts happening is the ip exists it's ready to go cleveland and mcguire are going to start working on this other game moonbreaker and it's like their baby they're in love with it and and they're like, Kalina, you got this. You handle Subnautica. It's fine. You handle, you to that. You handle Below Zero, the extension. You're doing great. Why does this matter? It's already normalized before Krafton is going to purchase this company.

0:14:53 Thomas: Yeah, well, and the main development sounded like a couple of guys, or was that just misleading? Yeah, yeah, that's cool. Sure, sure. Wow. Okay.

0:16:17 Jenessa: It's normal for them to hand off the IP to other people. It is normal for then to work as, off once the IP exists.

0:16:20 Thomas: Interesting. Okay.

0:16:25 Jenessa: This zero early access in 2019 full release in 2021 again they've done early access for every single game totally normalized why are you going to sell your company everything is going great they want this international marketing they start to solicit strategic minor investment but every company is like oh we would love to fully acquire your company like that's it's just not the business business lately?

0:16:52 Thomas: I was going to ask, like, why can't they just, like contract with somebody or something to do what this function is?

0:17:00 Jenessa: Know. I am not a business person. There

0:17:02 Thomas: Sounds like you're saying that just people were not, they were wanting to buy the whole business and weren't accepting. That seems weird I don't know hmm

0:17:10 Jenessa: With enthusiasm from over 30 companies, many of which expressed interest in a full acquisition. There muss be some reason that people do not want to do just I'll take 20 % of your company. I don't know,

0:17:23 Thomas: Or maybe it was just like they saw the right deal that they wanted like it was enough for them to be like okay maybe this money's worth it I don know yeah

0:17:29 Jenessa: It says right in here, like they're They're financially stable. They don't need to sell. They can be selective. They're not like, oh, my God, if we don't have this money, we can't finish the second game. Do you leverage that? You can either be like, I'm going to demand we find somebody who will only take 10 % of the company or something, at which point they obviously can't expect to control it. Or somehow you find somebody Who will fully acquire a company and give you total operational independence, which they do. Two, Krafton feels like a good fit. They like this early access model and they're going to agree to a contract that leaves Unknown Worlds with like pretty much total operational control of the development side. Is in 2021. They enter into the equity purchase agreement. Going to buy 100 % of the outstanding shares, essentially by the whole company, for $500 million dollars. Huge. There is a performance -based bonus that's going to be available for Cleveland, McGuire, Gill, and some other Unknown Worlds team members. They're not named in this. Is it going to work? So at the revenue that Unknown Worlds pulls in from now Now until December 31, 2025, which they have, Fortis has the option to extend this out to June 2026. I

0:17:59 Thomas: Okay sorry who the hell's fortis now we got too many I don'T remember now

0:18:55 Jenessa: Know Fortis is the plaintiff here, the people who negotiated the acquisition.

0:19:01 Thomas: Don't get that but okay huh

0:19:03 Jenessa: Are. The docket is really locked down, so I can't get a hold of the actual exhibits for this. They have the option to extend. I don't know why you wouldn't always, whatever. Looking at your revenue from now until December 31, 2025, option to extend to June 2026. your revenue over that time period surpasses $69 .8 million, for every dollar Unknown Worlds pulls in, Krafton is going to pay an additional $3 .12, up to a cap of $250 million.

0:19:37 Jenessa: Essentially, the way to think of this, Krafton wants to buy the company for $500 million. Unknown Worlds thinks they're worth $750 million. This is going to give you a window to say, well, we'll buy you for at least $500 million. If you can pull in this much revenue over this time window, we will pay you, exactly.

0:19:54 Thomas: Like prove your case like like prove your worth more okay gotcha

0:19:58 Jenessa: Yeah, we'll pay you up to $750 ,000, somewhere between $500 ,0003 .12 and $750 .000. Okay. This contract, Cleveland, McGuire, and Gill are defined as key employees, and there's a couple of places where it really matters who the key employees are. So the key employees have operational control over Unknown Worlds for things like product roadmap, launch planning, partnering, employee matters, anything to do with making a game, you agree to keep running unknown worlds in the ordinary course of business consistent with past customs and practices yeah keep this operational control we're not gonna tomorrow decide to be a hot dog

0:20:44 Thomas: Yeah

0:20:44 Jenessa: Stand like you paid for a video game company um can only be fired for cause specifically negotiated defined in the contract and so these are the the things they could get fired for. Commission of a felony, the intentional wrongful disclosure of trade secrets or confidential information, a willful act or omission that constitutes gross misconduct, or an intentional act of fraud or dishonesty. That's it. Can't be fired for anything else, unlike the rest of us who can just get fired for anything at any time. Also employment contracts. They have to devote substantially all of their business time and efforts to unknown worlds. Might get assigned other duties by the board. You have to perform those. Bonus will be adjusted if the key employees leave. So basically putting all this together, right, you don't want it to be, well, if I quit immediately, you still have to to pay me this giant bonus. But you also don't want it to be I work really hard on this and then right before the bonus is triggered, you fire me and I get nothing. So the way we've kind of made it so this could be fair for everybody, I maintain operational control. I get to decide to launch the product in time to possibly make the bonus. I agree to keep operating the ordinary course of business you agree you can only fire me for cause um to devote substantially all of my time to the company generally and this part is the part that I find shocking um bonus adjustment if cleveland mcguire or gill left the company during the earn out period the qualifying revenue Which I'm not 100 % sure what number that is. It would be reduced by 1 million per departing key employee. We are talking about up to 250 million. So this is like nothing. Of it is if they leave they're still getting this bonus they're fired, they're still getting this bonus. You you know, if I did a year two year three years of work and then you fight even if you fire me for cause you still kind of owe me for the work I did right so bonus is going to be really hard to get rid of the way you get rid rid of it is, I don't earn it because we don't hit the earnings cap. Not, I quit or you fire me. If I quit, or you hire me, there's a very slight reduction in it. This purchase goes through. Hooray. Cleveland and McGuire keep doing what they're doing, which is focusing on this Moonbreaker game, while Kalina is working on Subnautica Below Zero, Cleveland is coaching the vision for Subnautica, but with Krafton's encouragement, he is working on a Subnautica film or TV adaptation. Krafton thinks this is a low -cost, high -reward way to elevate the brand globally and increase game sales.

0:23:48 Jenessa: Don't know who told them a movie is low -cast, but

0:23:47 Thomas: I well if you partner with a studio and they they finance it or something they're probably just licensing the like the ip to be in the movie

0:23:54 Jenessa: Maybe? Hmm. That may make sense. Cleveland's comparing it to, like, Fallout and The Last of Us. Those series, they're successful on their own. They have a big impact on game sales. Like, okay, that makes sense. Yeah, hopefully they're not planning to produce it themselves.

0:24:08 Thomas: The studios don't like foot all the budget for that like the game studio yeah I think nintendo might be an outlier in that I think they have produced the uh movies like themselves entirely but I don't think that's the norm speaking off the cuff that's my memory of it we'll see someone will fact check me

0:24:20 Jenessa: Interesting. Sure. Okay, I thought you'd find this funny. To build his Hollywood network, work cleveland also dabbled in other film ideas including a christmas movie and a zombie script he emailed park this is a crafton employee who will come up repeatedly he was making a christmus movie she received a link to a podcast to documenting his filmmaking journey I man you gonna do what they're going to do here's the thing park the The Krafton person expressed excitement the zombie movie could become a game. So, like, Krafton knows. They're on board. It's going to get real hard to complain about this later.

0:25:08 Jenessa: Moonbreaker game? Huge flop. Sucks. Nobody likes it. Sales tank. Cleveland devastated. He considered it his masterpiece. He takes a lengthy mental health break in Italy. He's off the job. Crafton knows. They don't complain. They encourage him to do what he's got to do for his mental health.

0:25:02 Thomas: God all right yeah sure

0:25:30 Jenessa: McGuire is, meanwhile, getting the management ick. Exactly what happens, right, when your company grows. He's nicht programming anymore. He's managing people, and that sucks, and he's not enjoying his job. And he says to Gil in Cleveland that he wants to quit. And Gil, the CEO, the guy who's in charge of the company, the business guy, is like, hey, remember that bonus that goes down if you leave? You not? And also, hey, hey man, let's just put you back in your old role. Let's just go back to like what you do best. How about that?

0:25:30 Thomas: Huh yeah

0:26:06 Jenessa: So they make these role changes official. Cleveland is now the franchise creative director. He does creative stuff, which sometimes involves vacationing in Italy. Um is now special projects director no people management tech and r &d um special project mcquire's main interest was exploring how subnautica benefited neurodivergent players and children with autism he wanted to research how games could actually be adding to the world noting that he received lots of emails from parents of kids on the autism spectrum who who had benefited from the game. I thought that was nice. A guy who works at Krafton, a studio supporter. He says he's adding this to Krafton's corporate social responsibility goals. Like, hey, look, we're doing socially nice stuff. Again, going to be real hard to complain about this later because you're bragging about it right now.

0:27:03 Jenessa: Both Cleveland and McGuire, with this reduction in their role, they take a pay cut from 384 ,000 a year to 100 ,000 a year. In mind, these guys just sold their company for 500 million. Yeah, I'm assuming they're fine.

0:27:20 Thomas: Sort of like um just for show kind of thing like

0:27:22 Jenessa: It's probably, I think something that would be required if you are suddenly going from this a title that was very executive to am doing the creative director thing. I am doing an rnd thing that your your pay probably has to reflect that um yeah

0:27:39 Thomas: Because if anyone else is doing that same job it would you wouldn't want to be like oh the other big pay discrepancy kind of of problems and all that makes sense sure

0:27:46 Jenessa: Any company especially if you're public now like this could create problems um park their corporate liaison for crafton acknowledges yeah this is just a title change it's reflecting accurately what was pretty much already true about what you guys do so this is fine nobody has a problem all starts on Subnautica 2 while Cleveland is still away. Kalina, the guy who was doing Below Zero, is still the team lead, and it is struggling.

0:28:14 Jenessa: Cleveland comes back in 2024. His note is that the Subnaudica team was a bit lost. Tells Kalina and his co-lead, Anthony Gallegos, all right, focus on the game's core loop. Make a holistic prototype. You can do this. You got this. Doesn't intervene and does not work it's still struggling so Cleveland and McGuire team up build a prototype for Subnautica 2 they replace Kalina with Gallegos sorry buddy you've been trying it's not going anywhere the game takes off everything's going great Cleveland

0:28:48 Thomas: Want to clarify because of all this early release crap are you saying takes off in the sense that oh development is going well or is there some like bullshit that's released and people are seeing it already okay

0:28:58 Jenessa: Is not released yet so

0:28:59 Thomas: So it's just like development's going well okay gotcha cool

0:29:02 Jenessa: In - house development, suddenly everybody's like, oh wow, this looks great. May 2025, Cleveland, apparently hiding on this docket that I can't get access to, one of the exhibits is a video of Cleveland playtesting the build, and his reaction captured on video was unbridled enthusiasm. Enthusiasm. God, do I want to watch that?

0:29:28 Thomas: But it's like trade secrets kind of thing they

0:29:30 Jenessa: You. I bet you it's going to be trade secret lockdown for now. The team starts planning for August 2025. That's our early access release. Krafton greenlights a trailer that says, late 2025, early access, release, enthusiasm is high. Hooray. We have a meeting. And the models say, if they do that that release, they are going to expect to sell 1 .67 million copies by quarter four. It will trigger the bonus payout somewhere between 191 .8 million or up to 242 .2 million. So basically almost

0:29:33 Thomas: Sealed wow

0:30:06 Jenessa: All the way up to the negotiated cap. The CEO of Krafton, Kim, personally led the acquisition. He has decided they've overpaid, that this is going to earn him a reputation as a pushover to have paid this much for this company and tries to tell cleveland like oh if we pay you this bonus this could significantly reduce the studio's book value and it's like I mean yeah when you take money out of the book the book goes down not quite sure what that's about um have a meeting with craft and executives where they show the demo and it starts to feel really pretextual a lot of like oh the game it doesn't look ready it's lacking freshness and guy uh worked with before the one who was like really hyped about mcguire's project he said he is starting to think that people are trying to create excuses to not pay the earnouts so this guy seems like he works for crafton but he's telling unknown worlds like behind-the-scenes, like, his suspicions about what's going on in his own company. Seems to happen a couple of times in here. To be an ally.

0:31:11 Thomas: Interesting that's an interesting choice though

0:31:17 Jenessa: Yeah, I, oh, man, God, I would love to know what it is like behind the curtains over there. All still working there as far as I know. CEO, Kim, says he thinks they're being greedy. Human greed really has no limits. You're the one trying not to pay them the bonus, but whatever. So he's talking back and forth with Park, the person who is the liaison between Krafton and Unknown Worlds and Park and their legal department. And he's like, come on, we must be able to get out of this. And she says okay yes you on behalf of legal cleveland was arguably negligent since the moonbreaker failure he's been very hands-off he's Been working like four hours a week yeah not great it's Not so poorly managed that it would constitute deliberate deception which is the thing you needed for four cause firing in the contract this is uh this is something park said to kim yeah internal to craft and they got this in discovery I'm

0:32:14 Thomas: Your opinion or are you telling part of the story still I'm just clarifying oh oh actually okay gotcha yeah but that's not oh I was gonna gonna say so that's not yeah legally privileged oh

0:32:30 Jenessa: Surprise it's not work product uh they're really it must be I'm assuming from this park is not a lawyer park the impression I've gotten is that park is like on the board in unknown worlds and was speaking to legal and park and that's the problem that

0:32:47 Thomas: Yeah that's that's probably it yeah you see see any non -lawyer well I don't know what kind of privilege we're dealing here but and that can be a problem

0:32:55 Jenessa: Yeah like paralegals will count as part of the privilege but soon as it's a big group conversation things are not privileged anymore so I suspect that's what's going on here um says this and that the game is not in such bad shape that it would create a debatable issue in potential litigation oh

0:33:16 Thomas: Now which game the game that's badly or the subnautica 2 okay just

0:33:20 Jenessa: Is subnautica 2 yeah so we already know moonbreaker didn't go well um

0:33:25 Thomas: Know but once but again with the early release crap you know that's happened to games where they release badly and it's like you can actually recover you know there's that space one there's the cyberpunk like there's these games where they come out everyone's like well that sucks and then like you a full -on like five years later they're like hey that game's actually good now if you want to go play it it's like I don't understand the world anymore but that's okay I'm just getting old yeah

0:33:50 Jenessa: Gonna try to find some reason that like subnautica 2 is gonna be bad and that's how I'm gonna get out of this

0:33:54 Thomas: These feel like really bad documents that you're talking about here for them.

0:34:00 Jenessa: My god it's only gonna get worse yeah he's pissed we're gonna have to pay out too much this doesn't feel good um

0:34:10 Thomas: I don't like paying that. Owie. That feels bad when I pay money.

0:34:15 Jenessa: Um says over slack uh park and dismissal with cause still not gonna eliminate this earnout obligation you are gonna have to pay this bonus and they say we will still have to pay it but we are going to expose crafton to lawsuit and reputation risk just pay it I'm sorry guy like you're stuck yeah

0:34:35 Thomas: How much is this bonus? Because like there's the bonus and then there's like the, guess the overall price of the buyout. Maybe I'm not totally understanding, but

0:34:44 Jenessa: Already paid 500 million done and then they could pay up to another 250 million and

0:34:52 Thomas: That is quite a bit. Yeah, yeah.

0:34:54 Jenessa: Quite quite a bit of money for sure but the way that contract is written the only way you're not paying it is if they don't make the sales that they said they would

0:35:03 Thomas: And if you structured that right, then I don't know. Then that's what it's worth. It doesn't seem that bad. I don'T know why they're avoiding this at all costs. I mean, if they make those sales, then they're worth probably more. Or you really effed up with the original calculations you did.

0:35:16 Jenessa: I you combine subnautica and below zero the gross was 300 million like you're planning to hold on to this company for a long time and hoping they're you know the sequel is looking to make a lot of money. You're looking at, they're going to hit that 69 million in one quarter. Be happy with what you got, right? No, the lawyer says, my guy, even if you manage to find a good reason to fire them for cause, you're still going to have to pay out most of this. You'RE going to expose us to a lawsuit and reputation risk. Like, let it go. So he turns to ChatGPT. This is where it gets bad.

0:35:55 Thomas: What kind of moron are we dealing with here?

0:35:59 Jenessa: Man, ChatGTPT initially says the earn out will be difficult to cancel.

0:36:06 Thomas: Even ChatGPT is like, what are you doing here?

0:36:08 Jenessa: Yeah.

0:36:09 Thomas: Just what are you doing? It yeah it's it's probably pretty good at contracts I mean you know yeah

0:36:11 Jenessa: Contracts are on the bar and bar prep materials are online. So ready to answer a basic contracts question for the most part.

0:36:21 Thomas: But not a mom and pop thing if they're affording this level of buyout like have money what what's going on like why he so dedicated to trying to save a little bit on this purchase yeah

0:36:34 Jenessa: Reading between the lines I just think it's ego he keeps saying this stuff about they're greedy I'm going to look like a pushover I'm gonna look like I signed bad contracts and it's like I don't know man you bought a tiny video game company that makes a bazillion dollars with like 40 employees I think whatever you paid for it was a good deal I donno I'm not a business person what do I know know okay

0:36:59 Thomas: I maybe they got spooked like the if game that was like said was his masterpiece tanked I guess I do see the idea of like I'm paying a lot of money on the idea that this is going to be a huge revenue generator going forward and if it's like you just saw the guy who said this is my masterpiece and and the thing sucked. Okay, I guess I could see being like panic mode. Like, did I just buy a lemon kind of thing?

0:37:23 Jenessa: It seems though the panic mostly started when they had a board meeting that said the next game is going to be the most successful thing on the planet and you're going to have to pay them um

0:37:34 Thomas: Thought they weren't going to have to pay that bonus or something. And then it's like, oh, you are going to pay this bonus. And yeah. Okay. Weird.

0:37:40 Jenessa: Maybe yeah he's the guy who negotiated the sale so maybe he really had in his head they'll never ever make these numbers. I'm gonna only pay 500 million. I'M GONNA ONLY PAY 500 MILLION? THAT'S SO MUCH MONEY! Whatever.

0:37:46 Thomas: Who knows? Okay. Well, anyway.

0:37:53 Jenessa: Okay, so ChatGPT first says no, but if you press hard enough, it'll always say yes. So he gets a plan, Project X. I not figure out if he named it that or if ChatGT named named it that but project x the plan how we're going to stop this yeah

0:38:05 Thomas: What? Sorry, what? What is this? Oh, God. No way. He's like, hey, ChatGPT, you want to name our plot? Love to. Would love to. Project X. is very cringy.

0:38:25 Jenessa: I am going to send you so you can see it it responses that chat gpt recommends you

0:38:33 Thomas: This is, oh. Oof, I can't believe we're reading. Again, this kind of thing, I'm prepared for it when it's like a sues their landlord. It's like, okay, they're using ChatGPT. You know, I get it. They don't have resources. Are we doing with a major company that's buying something for three quarters of a billion dollars?

0:38:54 Jenessa: Have the best lawyers in the world yeah

0:38:56 Thomas: Are we do? What am I reading here? Which part repeat this is ChatGpT's advice that I'm reading here.

0:38:59 Jenessa: We've got our start here uh of a preemptive framing yes chat gpt's advice for how to handle this situation

0:39:12 Thomas: I'm very tempted to read fake chat GPT stuff into it, but I will. Hey, great, excellent idea. I've got a plan. If you want to see on the next message, it's the doing that now. I probably, this, this predates that, but it's latest thing it's doing is every, the end of everything it tells you. If you'd like to see a really cool thing to do such and such, just let me know. And it's like keeping the engagement up anyway. Okay. Real thing. Preemptive framing. Repeat that protecting quality and fan trust is the highest priority. Undermine the, quote, large corporation versus indie framing. Securing control points. Asterisk, lock down Steam slash console publishing rights and access rights over code slash build pipeline through both legal and technical aspect. What the? This isn't even like legal advice. This is like strategy for.

0:40:00 Thomas: Okay. OK, for the earn out freeze, keep room for negotiations through provisions stating immediate removal if specific development results are achieved.

0:40:09 Jenessa: To assume it means are not achieved not that we will fire you if you do the problem is they do want to fire you because you're achieving results so

0:40:19 Thomas: It doesn't actually make mistakes like that. It's staying. They'll remove the freeze. So it's an earn out. Freeze. You'll remove it if the results are received.

0:40:28 Jenessa: They'll remove I'm not gonna remove you I'm gonna remove the freeze yeah

0:40:33 Thomas: Yeah. So it's like, OK, here's our negotiation tactic. We're going to say, well, there's a there's an earn out freeze arbitrarily, I think, is my what I'm reading here. And you will remove it if there's development results that you achieve.

0:40:46 Jenessa: Not good legal advice it's a

0:40:48 Thomas: None of this is legal. This sounds like this, like here's how to do weird crap. I don't know what this is.

0:40:53 Jenessa: Here's how to do bad things

0:40:55 Thomas: Should I read the next stuff or are you good?

0:40:58 Jenessa: Uh yeah I mean I always love the a b a b c because we put some asterisks under b so we don't know that uh

0:41:04 Thomas: A, B, asterisk, asterisk. Okay, what year was this? That's actually kind of important because the versions of ChatGPT changed so quickly.

0:41:13 Jenessa: This would be 2025 it's very recent yeah yeah

0:41:18 Thomas: Okay, so it's pretty recent. Document is from, so like the lawsuit, that seems really fast.

0:41:25 Jenessa: This lawsuit we are in an expedited proceeding at this point uh we're gonna move this wicked fast right

0:41:32 Thomas: Thing I'm reading is advice that led up to this.

0:41:36 Jenessa: He did this after the may 2025 meeting meeting yeah

0:41:40 Thomas: Gotcha. OK, so, I mean, all right. I mean it's not the latest chat GPT, but it's at least it was going to be funny if you said like 2022 or something or 2023 because then it would be like, oh, God, you're getting dog shit advice. So then, like you say, it goes back to ABC again for some reason.

0:41:56 Thomas: Systematic materials for legal defense. Prepare contract interpretation memorandums. Log all communications. Seek external consultation.

0:41:56 Jenessa: Get a lawyer it tells you I

0:42:07 Thomas: Team retention. Operation of retention packages for key personnel and rapid backfill pipelines. This is just like corporate speak for nothing. For key personnel Yeah, I mean, this make some sort of sense, like, game theory -wise, but it also just seems like, what position is this person again that's CEO? That's what I thought, but I wanted to make sure. So the CEO, if you found out, I'll tell you what, this CEO better be getting sued too, like every which way. No, I'm serious. If I were any shareholder in this company, depending on the company structure, and I was like, I am sorry, Mr. CEO, you are getting business advice from ChatGPT. That's how you handle it. And you are doing unlawful contract stuff because the computer told you to do that. I would sue.

0:42:44 Jenessa: Is the CEO oh yeah against the advice of legal I

0:43:15 Thomas: Oh, my God. This I would see the pants off this guy. There's no way this guy isn't getting sued like vis -a -vis their employment contract. But separate story, I guess.

0:43:20 Jenessa: Would hope yeah uh would have to imagine that's coming it's

0:43:27 Thomas: Where's the part where's Project X? What was that? I didn't see it.

0:43:30 Jenessa: This is a project x is the title of this entire this larger method of how we're gonna somehow get out from under this contract and this is part of it I

0:43:42 Thomas: OK, so I scrolled up. So at ChatGPT's suggestion, Kim formed an internal task force dubbed Project X. oh this is so stupid yeah

0:43:55 Jenessa: Know so judge does a really good job of pointing out the ways that That he did, in fact, follow this to the extent that this is followable, that it's not just corporate speak that doesn't really mean anything. Preemptive framing thing. How are we going to show that? Well, it's the large corporation versus Indy. We're going to get fan trust. Crafton posts a message on the Unknown Worlds and Subnautica websites that says, our 12 million fellow subnauts, four dots, we have asked the series creators, M-Dash, this was probably written by ChatGPT itself, Charlie Cleveland and Max McGuire, to once again helm the journey. It also falsely stated that Charlie and Max were considering Krafton's invitation. So it basically implies they are not working on it, and we are asking them to come back to work on the thing that they have worked on it. Yeah they're posting on the like subnautica 2 website like we at crafton are asking them to come back to helm the journey and the unknown worlds people are shocked this just appeared on their own website so

0:44:32 Thomas: Come on subnautica 2 huh huh what's even the point of that trying to build some sort of hype or something I

0:45:18 Jenessa: Trying to frame it that telling the fans Cleveland and McGuire aren't really working on this game trying

0:45:25 Thomas: Understand why they would do that

0:45:27 Jenessa: He's following chat GPT's advice protecting

0:45:29 Thomas: What does chat gpt think this is doing I guess is my question huh

0:45:33 Jenessa: Quality and fan trust undermine large corporation versus indie framing so like getting out in front of the idea there and it kind of worked a little unless everybody's saying this was bots which is entirely possible that somehow this was uh and Maguire's fault that this, this breakdown in the relationship was because they abandoned the game, not because Kraft and her big greedy jerks. That's what's really going on here.

0:46:02 Thomas: That's so so this is just like PR to the side though. It doesn't really, I guess I was trying to figure out how does this help their like legal strategy, but it sounds like more PR. Okay,

0:46:10 Jenessa: It's super doesn't. Makes it worse, not better for The unknown world's people are freaking out. The real, there's other other signs the relationship is going downhill. They start mass downloading their files to personal backups. IT will catch them in July and they will give it all back, which is good news for them legally because they definitely should not have done that.

0:46:31 Thomas: You don't want to do that. Yeah. You don't t want to. Are getting advice from chat GPT too? No, chat GPG would probably tell them better advice than that.

0:46:32 Jenessa: Bad, bad move. Don't do that. God, who knows? This whole secure control points. Okay, this was the only good practical advice it was terrible legal advice crafton locked down access to steam unknown worlds could not publish their game as planned because they could not access their own steam accounts uh oh

0:46:54 Thomas: God, they're stealing the podcast. Holy shit. I just had this thought that thank God chat GPT wasn't, I don't think available to give andrew better advice because it would have been better than the dumb shit he did like it really would have no probably not because he was so good at thinking what he wanted to think he'd be like no here's all my theories about what thomas is doing chat gpg would be like oh my god you're so right you beautiful amazing man here's some more advice

0:47:23 Jenessa: I think the more of an ego you bring to it the more more of a, God, you're amazing. It brings back to you.

0:47:30 Thomas: A hundred percent and that feels like what's happening with this ceo honestly in my very unprofessional opinion yeah

0:47:36 Jenessa: Sure. So, Locking it down, yeah, you are not wrong. That brought Gil to the negotiating table and he was like, my guy, we need access. What are you doing? Guy who kind of fed to them, I think, I think—remember at the board meeting, like, hey, I think they're just trying to come up with an excuse to not publish your thing. Same dude tells Gil via a LinkedIn message. So, like clearly the lockdown has hit the point where we have no internal communication happening. Happening he says to gill kim has no intention of transferring stuff back to you guys like the steam app like come into this thinking you're gonna get it back by just saying pretty please like he's trying to do something yeah

0:47:57 Thomas: Yeah holy crap oh guy's an idiot like what asshole okay

0:48:28 Jenessa: Not good the whole oh systematic materials for my legal defense well apparently the legal department's gonna do what the ceo asks they draft a letter for contract demands they're trying to say revert your titles back rededicate yourself to subnautica 2 and start gathering evidence of cleveland's forays into film the thing they told him was a great idea so I don't know who that's supposed to help

0:48:55 Thomas: See that's the thing and that's what happens with you know I'm sorry to bring it back to you know Andrew but if you don't here's if the thing I blame chat GPT it's the user this is the user if you you don't tell your lawyer bad it is the worst thing for you. And that's what happens. Liars can't even tell the people that need to know the stuff, the bad stuff.

0:49:09 Jenessa: -hmm everything yep yep

0:49:19 Thomas: And then they're effed because if there's a really bad fact that compromises your whole strategy, I'm sure if you told chat GPT, I mean, yeah I'm not trying to defend chat GPG overly. So, but I do really think it's this guy. Like you tell chat GPD, if you don'T tell him, um, well actually, you know, there's times where we said like cool awesome about the movie idea like if you don't tell chat gpt that you know then it's going to be like oh yeah okay exactly

0:49:19 Jenessa: Sure it's both yeah in same way that if you don't tell your lawyer that they will not know it

0:49:46 Thomas: Precisely that's that's that's my point so gbt again I don't endorse doing this at all but it's funny to belike well okay also if you weren't an asshole you probably could have gotten better advice from chat gvt is my only point right

0:49:49 Jenessa: It's a huge problem yeah so draft this letter gill is gonna attempt to negotiate it because again they don't have steam access like everything's gonna fall apart the

0:50:09 Thomas: Yeah they're kind of frozen huh they're

0:50:11 Jenessa: Negotiations just do not work because obviously they're not going to bail on like it's they're looking at a 250 million dollar bonus like call it greed call it whatever you want like people are not goingto just give that up because you are trying to wield some unilateral power yeah

0:50:27 Thomas: Would they give it up that's nonsense oh

0:50:29 Jenessa: So of the guys who's the team lead over at project x says to Kim, it might be easier to try a takeover, and Kim says, let's do it. So they send a termination letter to Cleveland, McGuire, and Gill on July 1 that says you're terminated on July 31. The letters identify a single ground for dismissal, the intention to proceed with a premature release of Subnautica 2. So, they're saying, it's just too dang early, we know better than you your game's not ready and

0:51:01 Thomas: Boy is this did this person find out about trump it was like oh there's no rules you just do whatever you know because like they're not wrong in some ways this is trumpian this is we're gonna get out of we're gonna bully our way out of paying any of our obligations real narcissist shit okay well

0:51:10 Jenessa: God so is yeah kind of and going to inflict long -term damage on the reputation of the game and the franchise you mean the people who made the reputation on the game in the franchise

0:51:27 Thomas: It's like sorry on the intention that they're gonna release something like do you know that they They are. Did you talk them out of it? Did you try to talk, you know, like, did you do any of the things you might need to do? You know, I guess there's so many steps there. It just seems pretextual. That's the word. It's just seems pretextual. You lawyers might say, oh, well the time has flown by Jenessa and we've barely gotten started so I think we're gonna have to do a double on this one we're going to have to du a double episode I'm really excited to find out what happens next because this guy seems like an asshole um give it you want to give us a little little wee preview of what's coming in the next part oh

0:52:09 Jenessa: So we're gonna get finally to the actual suit over this and find out how do you get specific performance of a contract in this situation yes

0:52:19 Thomas: I know specific performance from t3be I

0:52:22 Jenessa: Yeah and how do we end up with some but not all employees rehired as a result of this I

0:52:31 Thomas: Interesting wow I'm super excited much for the breakdown this is really fun hey here's what we're gonna do especially since we've got peter helping with the editing I we can get part two up for patrons like right away so if you want to go to patreon.com/law you can listen to part two right away uh unfortunately the schedule is the schedule we're going to have to hold off on part two for the non-patrons apologies but uh THE BENEFIT OF BEING ON patreon.com/law so you WANT TO GET IT RIGHT AWAY HEAD THERE IF NOT UH WAIT IT'LL BE AMAZING to hear part two when it comes out thanks so much for listening thanks Jenessa and excited to find out where this goes we'll

0:53:05 Clip: This has been Opening Arguments, produced by Thomas and Lydia Smith, with editing help from Peter Baird. The intro is by Thomas Smith. This outro is by Matt Cameron. Support the show at patreon.com/law. Contact us through Patreon or openarguments@gmail.com. Make sure to follow our blue sky at OpenArgs. But most of all, please share the show. Thanks for listening.

0:53:40 Thomas: Like I don't understand the world anymore but that's okay I'm just getting old yeah

0:53:47 Jenessa: Park whoop just threw objects across my desk uh

0:53:52 Thomas: Don't like paying that. Owie. That feels bad when I pay money.

0:53:57 Jenessa: I was busy adjusting my hair and my headphones and I was like if I talk over all this little rustling it will be me very messy

0:54:08 Thomas: Used to be a plastic cartridge that I had to blow in. There