Assuming Geno is in, here's the potential timeline:
Sakurai goes to Square Enix to get Cloud. Clearly mentions Geno as he walked away with the Geno costume and the Forest Mushrooms song.
This should be controversy free. We know this happened.
Around this time, Smash Ultimate begins development. Basic game project plan is either in progress or complete. Sakurai saves a slot for Geno, being one of the first characters planned for Ultimate.
This is speculative, but given the fact that the only DLC character Verg's sources knew months and months ago was a Square Enix one leads me to believe that this character was originally intended to be in the base game. The missing fighter in the file structure sits after Isabelle (who I believe was the first Echo Fighter, and then was upgraded to full character later in development), Incineroar (saved Pokémon slot) and before Inkling (a no-brainer character and the first one to be revealed). Whoever this character was, they were decided very early on.
Sakurai secures the rights for Everyone is Here, Square Enix gives him a hard time on Cloud.
We have info saying Cloud was added last, which makes Sakurai saying "we barely got everyone back this time" (or something along those lines) points to Square Enix demanding some sort of extra payment or concession.
To ensure that Everyone is Here, Geno is de-prioritised and made a DLC character so Nintendo and Square Enix could share profits.
Obviously also speculative, but it makes sense to me. Square Enix liked the cash flow from splitting the Cloud DLC price with Nintendo, and in order for him to return, they had to be guaranteed a similar deal. Solution? The SE character that wasn't a veteran would be made DLC so that the Everyone is Here tagline would be true. I also find it amusing that in the E3 trailer, there was a lot of focus on Cloud. He got a good double the amount of footage of any other character featured. I think Sakurai was pretty happy with himself that he got him back.
This is what I think happened. Now I can guess some questions are on their way, so I'll try to address them:
Even if you're right that the Square Enix character was in the base game, how do you know it was Geno?
It's been said plenty of times here, but recent information bears repeating the fact that Square Enix does not make it easy to negotiate. They are incredibly protective of their IPs, and if getting Cloud was this much of a hassle, getting almost any other SE character would be either incredibly resource intensive. Key word being almost. The notoriously stingy Square Enix was apparently quite happy putting not only a Geno Spirit in the game, but they went one step further and allowed for Mallow, too. Mallow wasn't in Smash 4 at all. This means that whatever agreement was reached re: Sakurai and Square Enix, it included more SMRPG content than Smash 4 had.
Well how come his Mii outfit isn't in the game then?
I believe that every single 3rd party Mii outfit is gone. Someone please correct me if I'm wrong. It stands within reason that they all had a profit sharing agreement, and that instead of shelling out money to try and replace that agreement, it was easier to remove them all. I don't doubt we'll see them all in the future, probably released alongside 3rd party DLC fighters for each of the respective companies.
This is my first post on Smashboards and I think Sora is most likely. I never even heard of Geno until last week.
This isn't a question. Go post in the Sora thread.