I mean, there is a perfectly valid reason.
What if they just didn't want to?
What if they primarily focused on getting new 3rd party IPs in?
Like, I'm not a Sonic fan, so consider this heresy, but Sonic... is frankly not lacking in content, at least as opposed to how Final Fantasy was. Sonic has 2(?) stages, 20+ songs, tons of Spirits... and before Sephiroth, we had, 2 songs, 1 stage, 1 spirit.
I know Nintendo focused primairly on new 3rd Party I.Ps. they were the major reason behind Tekken and Minecraft being in (Not to say Sakurai wasn't down, just that Nintendo was a major push in their Inclusion)
If they didn't just want to add Another Sonic character, that's reasonable. the thing is what would actually be the reason? If they wanted another Character from Another Series, that's one thing, but if we talking just based of the Merits of Another Sonic Character as a whole, It satisfies alot of Nintendo's Interest with the DLC. The biggest con I could give is that Sonic isn't very big in Japan, but even then It has had success there, with the Adventure games as an example, and Japan is still well familiar with Sonic
Also I don't think Another Sonic Character would get in because Sonic is Lacking in Content. While I think the representation itself is not as good as it could be, I think the content Sonic has is actually plenty. The reason I think Another Sonic Character would get in is because of the Characters themselves
Eggman, Tails, Shadow & Knuckles are Popular Iconic characters, that helps make the Sonic Franchise much cooler and more whole. When people talk about wanting another Rep from the Series, it's not just because "We don't want Sonic to be alone", it's majorly because the characters in the supporting cast have Alot of appeal, and people want to see any of these individual characters on the roster
That's also the Major Reason Sephiroth is in. The meat of the Challenger pack is not any of the Supplementary stuff like the Music, Stage, and especially not the Spirit Board. The Lack of Music might have been a cherry on top for why Sephiroth is in the game, but if they had no interest in adding in Sephiroth, we wouldn't have Sephiroth
With more factors than just merits. I could list them, but that's not really the focus here.
Did it not occur to you that perhaps characters from obscure retro games, games that aren't released yet, or... a Piranha Plant might be in because reasons other than their inclusions were "merited"?
There were still merits that still accompanied them though. For one, Base roster and DLC decisions are different from each other. I doubt we would get something like Ice Climbers or Game & Watch as DLC that they expect people to pay additional money for, but as a package in the Base roster, it's better for them, not to say it isn't possible, but I think the odds are more stacked against characters like them than usual due to how DLC Works
Plant was Free pre-order/Early Purchase DLC, they don't treat Plant the same as the other DLC because Plant probably isn't gonna have a similar amount of appeal as the DLC Characters they chose. even then, I believe a reason Plant was chosen as the Surprise character was because of how recognizable he is. It's crazy to say, but Plant is one of the most Iconic characters in the roster
For characters from games that haven't been released (Corrin and Byleth), keep in mind that they don't just do this for any franchise. There's a good reason in Smash 4 they chose Corrin over something like Elma (no hate towards her or Xenoblade Chronicles X). Fire Emblem had been established as an success, while Xenoblade at the time was still unproven Franchise. It's why a Series like Pokemon can get added to Roster plans despite their games coming out, but ARMS and Xenoblade Chronicles 2 had to wait. Plus the reason these characters get in is because they take the merit of Relevance up to 11, since these are the most relevant Characters can be at the time they are added
While alot of the characters do have Special Circumstances around them, they need to have some sort of Merit to either Nintendo or Sakurai in order for the Circumstances to even matter, and the More challenging a Circumstance is to overcome, the more merits the characters are gonna need, and also vice versa
A Lack of Merits doesn't mean the character is impossible to get in. but there need to be other things in place for them to be able to be added in. Banjo had a major lack of relevance, while be owned by a Rival Company. He still had Merits like large fan appeal and Previous success with Nintendo, but if Phil Spencer wasn't down with the idea, or if Rare perhaps made things Complicated, We might not have Banjo today, and if Banjo did not have the Fan appeal or Previous relevance with Nintendo, I don't think Nintendo or Sakurai would have bothered
In regards to Another Sonic Character, the fact that any combination of Eggman, Tails, Shadow, &/or Knuckles might have more merits than another character doesn't mean that they automatically get in over that other Character, I'll agree with you on that, but it helps, especially since there's no Circumstances holding Another Sonic Character back. This is what I'm trying to say. Tails having more merits than say Beat from Jet Set Radio doesn't automatically mean Tails will 100% be chosen over Beat, Nintendo could still choose Beat anyway. The thing is that in Nintendo's Eyes and interest, they would likely choose Tails over Beat since the merits do matter. Nintendo would rather go Safe rather than Risky, and that's what I'm trying to say here. yes