Epic pays for the freebies on the expectation that X copies will be redeemed. If more people redeem the game than that, they don't pay any extra. If less people redeem the game than they paid for, they overpaid (to the benefit of the developer).

I never got the avoid on principle argument

A bullet point summary of why people dislike Epic:

• Epic Games' CEO, Tim Sweeny, is an absolute knob.
• He acts out the role of the messiah coming to save PC gamers from the Steam "monopoly"
• Epic's actions demonstrate that he wants to monopolise PC gaming
• Epic has a slide deck (released as part of their Apple lawsuit) that outlines their strategy involving paying influencers to "disrupt organic engagement" in their competitors (specifically, Steam).
• Epic purchased, gutted, and resold Bandcamp.
• Epic, as a company, unethically monitises Fortnite by using dark patterns to trick kids into paying for skins.
• Epic has a tendency to pay for timed exclusivity rights of crowdfunded games as a way to force people onto their platform.
• Epic support is known to often permanently lock your account when compromised, rather than help get it back.
• Tencent is a significant shareholder of Epic. (For those that care)

The "avoiding them out of principle" argument comes from people refusing to be a statistic that benefits the company.