Owner's property division to change Smilegate's governance
Smilegate founder and chief vision officer Kwon Hyuk-bin / Courtesy of Smilegate
The ruling on Smilegate founder and chief vision officer Kwon Hyuk-bin’s divorce settlement is expected to bring changes to the company’s governance structure, which is currently based on Kwon’s full ownership.
The Seoul Family Court on Wednesday ordered Kwon to transfer a 35 percent stake in the company to his wife, surnamed Lee, as part of property division. Although the two sides can appeal and the size of the stake could change, it is highly likely to alter the ownership structure Kwon has maintained since 2012.
Smilegate had previously consisted of several separate entities, including Smilegate Holdings, Smilegate Entertainment which operates CrossFire, and Smilegate RPG, which operates Lost Ark. Earlier this year, however, the group merged the entities into a simpler structure fully owned by Kwon.
Without public explanation on why he maintains full ownership, the structure has drawn both positive and negative assessments.
On the positive side, it is seen as a strategy to operate the company independently without disputes among shareholders or pressure from outside investors seeking short-term profits.
Industry officials cite Lost Ark, a massively multiplayer online role-playing game (MMORPG) which has been in live service for nearly eight years, as an example.
A promotion image of Smilegate's Lost Ark / Courtesy of Smilegate
Monetization plan, better known as “business model (BM)” in the Korean game industry, has long been a key part for MMORPGs, with many titles relying heavily on pay-to-win elements that can quickly lift revenue but often draw strong criticism from players for being excessive.
Such criticism intensified among Korean gamers in the 2020s, contributing to declining enthusiasm for the MMORPG genre. Lost Ark, however, has maintained relatively limited pay-to-win elements and a BM that remains accessible to new players and those who spend relatively little.
“Opinions may differ between top-tier heavy spenders and ordinary players, but the game has limited pay-to-win elements relatively and maintained a structure that allows latecomers to catch up,” an industry official said.
“The fact that Lost Ark has remained popular overseas for years, despite players there being particularly sensitive to aggressive BM, may also reflect this approach. Attributable to this is the company’s governance structure that allowed the owner to maintain such strategies without pressure from outside shareholders seeking short-term profits.”
There were negative assessments as well.
Based on his full ownership, Kwon received 98.7 billion won in dividends last year, according to the company’s filing, while his cumulative dividends since 2020 are estimated to have exceeded 500 billion won. Since Kwon effectively controls how much the company pays in dividends, a significant portion of the company’s profits concentrated to the owner.
There has also been controversy over Smilegate’s listing attempt. In 2017, Rhinos Asset Management purchased 20 billion won worth of convertible bonds issued by Smilegate RPG under a condition that the company pursue an initial public offering (IPO) if its net profit exceeded 12 billion won in 2022. However, Smilegate later treated the convertible bonds as debt in the listing process, which it said eliminated its obligation to pursue an IPO.
In April, the Seoul Central District Court ruled that the move was unlawful. Lee also argued that this was Kwon’s attempt to lower the company’s valuation.
Even if the 35 percent stake ruling is upheld, Kwon’s ownership control would remain intact, but Smilegate’s governance would change. Special resolutions, such as amendments to corporate chargers or mergers, require approval from at least two-thirds of the voting rights represented at a shareholders’ meeting, meaning Lee could block such proposals if she opposes them.
Legal experts note that such a structure could create an unusual situation in which the two sides would still need to repeatedly engage with each other even after the divorce. “This may potentially run counter to the purpose of the divorce proceedings,” an official said.
It also remains uncertain whether Lee would retain the entire 35 percent stake or sell it for cash. In order to sell the shares at a fair value, she may require the company to establish a market price for the stake, which could in turn trigger calls for an IPO.
If she sells the stake directly to an outside investor, the impact on Smilegate’s management could become greater if the buyer is a strategic investor rather than a financial investor.
Smilegate said it has no official position on the matter because it concerns the founder’s private affairs. “The company will continue to carry out its business as usual,” it said.