So apparently something interesting came up in regards to Paper Mario and it's characters.
https://www.videogameschronicle.com/features/interviews/paper-mario-origami-king/.
TL;DR: IS isn't allowed to make unique characters out of already established characters in the Mario Setting (like Goombario or Goombella), and while they can make wholly new characters that don't borrow design elements from the Mario Universe (Origami twins or stationery bosses); they can't keep on reusing them in the future (they're forced to be one offs).
And apparently this isn't just Nintendo controlling Paper Mario really hard either. According to this comment by a deleted insider at resetera from back in 2018 (this was made in a topic where people were wondering why Waluigi isn't in WarioWare).
Here's the truth:
Nintendo has a quality assurance team whose goal is to make sure that all of the characters and worlds stay consistent. It was established after the early Wii era...people like Miyamoto noticed around 2009-ish that Nintendo contractors like Camelot / Alphadream / Intelligent Systems were getting a little too liberal with their interpretations of the Mario IP...so now they watch over everything and establish standards.
It's this team that prevents Waluigi from appearing outside of sports games.
It's pretty much everything related to the Mario IP. AKA it's likely that this team also decides which Mario characters are allowed into Smash as spirits, mii costumes, assist trophies, and fighters. And considering that they're still being reluctant with allowing unique characters to return in future entries or giving them bigger roles in the rest of the Mario IP; I won't lie when I say it makes me a little hesitant on Geno's chances, so far every playable Mario character has had an appearance in multiple different mainline Mario games, so that may be the team's criteria for who gets to be playable or not. Waluigi for example is entirely relegated to spin-offs.
Hopefully Sakurai manages to convince this Mario IP team to let him add characters like Geno or Waluigi as playable characters this time, and maybe they end up seeing how much unique characters matter a lot to people and bring things like unique NPC/partner designs back.