Fine as individual isn't a garuntee for fit, I think.Sephiroth is a pretty fine addition tbh
Like I love ice cream but I don't pick it for dinner.
I think the arguable part is denying other Square contents are iconic enough for their own history. And to FF fans in general they'd want something else to be presented to show different universes of same series.Sephiroth is from Final Fantasy 7. To put things short, Final Fantasy 7 played a huge role in popularizing JRPGs in the west, and he's the main villain of the game. He's very iconic and well-known. Just look Final Fantasy 7 up on Wikipedia, it'll give you information you need and why he's popular and put into Smash Bros.
Sephiroth is chosen more because of his personal charm in games that garuntees the income for a DLC, while NIntendo choose to ignore game crossover matters in this one. But like the Byleth case, I think an actual smart presenter would just say "we would try to push unexpected additions to wow you" which is much less specific than "we want to expand the game worlds in Smash".
The really shadowed and robberd candidate is Chocobo, who could had been legally counted a seperate IP character, although we know he wouldn't make as much money as Sephiroth tbh. I think this would be like SNK announce another Fatal Fury character despite KoF have tons of candidates around.