Here’s the $160 million question about Santa Monica’s Game Show Network, best known for airing “Family Feud” and “The Newlywed Game” marathons: Why was it bidding that much to buy a smartphone bingo game?

The cable channel raised eyebrows when it revealed last month that it had agreed to pay up to $160 million in cash and earn-outs to buy Foster City startup Bash Gaming, maker of a popular bingo game playable on mobile devices and Facebook. The deal went south and Bash sold to another buyer, triggering a legal fight that brought the negotiations public.

The nature and size of the attempted acquisition might seem surprising, but it signals how serious GSN has been about moving into online and mobile games, analysts said.

“The writing is on the wall that you’re going to see more viewer fragmentation,” said Derek Baine, an analyst covering TV programming at SNL Kagan in Monterey. “A lot of these viewers will be going to mobile or the Web for content, whether it’s watching TV or playing games. Most of these cable networks understand you have to build a Web or mobile presence and take advantage of a brand name you’ve built.”

Ratings for GSN have remained flat over the last two years. But even that is better than many rivals, some of whom have seen viewership drop more than 30 percent, hurt by online services such as Netflix and increasing competition from more channels.

Facing industrywide headwinds, the company, owned by Culver City’s Sony Pictures Entertainment and El Segundo’s DirecTV, has bet heavily on another venture – developing online casino-style games. The games are variations of slots, bingo and poker, allowing players to compete for points instead of money.

As a result, while GSN remains small peas in the television landscape with an average viewership of 194,000 households, it has become a player in casual online games. It is one of the 10 biggest game developers on Facebook by number of daily users, according to a report last year by an industry trade group, and publishes one of the five top-grossing casino games for iPhone and iPad, according to a study last year by research firm GamblingData.

GSN declined to give revenue figures or comment on its dealings with Bash. But it reportedly expected $65 million in online revenues in 2010, the year the company began focusing heavily on online games. That would have accounted for 28 percent of total revenues, according to estimates from SNL Kagan.

Changes

Game Show Network, which launched in 1994 as a channel airing classic game shows such as “Match Game,” began making big changes in 2007, when it hired David Goldhill as chief executive. Since then, it has developed more original programming, including reality shows, and expanded into more households. It now reaches more than two-thirds of cable households.

Though average ratings haven’t gained during that span, revenue and cash flow from television operations jumped every year due to higher licensing fees and advertising rates, according to SNL Kagan. The company is expected to hit earnings before interest, taxes, depreciation and amortization of $97 million on $216 million in revenue this year, up 24 percent and 14 percent, respectively, from last year.

It moved into social media games in 2010 with the purchase of Mesmo Games, a developer of games playable on Facebook. GSN launched casino-style games playable on the social network in 2011 and then expanded to games on mobile devices.

The allure of casino-style games playable on social networks is clear: The global social casino gaming industry doubled in one year to $1.6 billion in 2012 and is expected to hit $2.5 billion by 2015, according to research firm SuperData. Games are usually free to play, but might charge real money for bonuses such as additional playing chips.

That growth – and the potential legalization of online gambling, which could open an even bigger rush toward such games – has led to more money being poured into the market. International Game Technology, a Las Vegas maker of gambling machines, agreed to pay up to $500 million last year to acquire DoubleDown Interactive, a developer of casino games playable on Facebook. Casino giant Caesars Entertainment paid between $80 million and $90 million in 2011 for a majority stake in Playtika, another online casino game developer.

GSN was looking at an acquisition in the growing niche of casino games playable on mobile devices last year, and during that summer entered discussions to acquire Bash, according to its lawsuit filed in Los Angeles Superior Court.

Bash has one game – Bingo Bash, a variation of bingo that awards extra points when certain bingo spaces are called out. Users initially play for free, but they need to purchase additional bingo chips. Bash announced last year that it was on pace for $55 million in revenue, up from $3 million in 2011.

“GSN has been working to reach mobile customers, and GSN believed that Bash’s product offerings, content production capabilities and business model would complement GSN’s own business,” its complaint states.

In July of this year, GSN claims that it offered $130 million, half in cash and half in earn-outs, to acquire Bash. (Based on Sony’s purchase of an additional 18 percent stake in the business for $234 million last year, GSN is worth about $1.3 billion. The purchase upped Sony’s holdings from 40 percent to 58 percent of the company, with DirecTV holding the balance.)

On Oct. 14, GSN and Bash executives met in Palo Alto to finalize the deal, but Bash revealed it had received multiple other offers, including one that promised 40 percent more cash. GSN came back with an increased offer of $160 million, and further enhancements including $1 million in annual compensation for co-founders Sumit Gupta and Vikas Gupta, and payment of tax insurance premiums. On Oct. 18, Bash accepted the offer, with an anticipated closing date of Oct. 30, according to the complaint.

But on the morning of Oct. 30, Sumit Gupta told GSN that he had accepted an offer from another unnamed bidder, scuttling the GSN deal.

In its lawsuit, GSN is seeking to enforce alleged agreements to buy Bash, as well as damages.

Dennis M.P. Ehling, an attorney who specializes in online gaming who reviewed the case for the Business Journal, said the case was unusual because of how close the deal was to completion.

“It was a deal that got really, really far down the road,” Ehling said.

Chasing growth

Though the deal didn’t close, analyst Baine lauded the effort to chase mobile gaming business, as the current cable TV landscape doesn’t offer much chance for growth.

“I think that it’s a good strategy to expand with mobile gaming,” he said. “Everybody’s trying to figure out ways they can use the Internet and mobile to drive the stickiness of the channel so you don’t suffer from this ratings erosion you’re seeing.”

Still, $160 million is a lot to pay for a bingo game, said Mike Hickey, a technology analyst at Benchmark Co. in Denver.

“Companies are paying a larger premium for an asset when they’re playing catch-up,” he said. “It seems awkward to me. You can see it from the point of view of casino competition, you can see it from mobile gaming companies, but from the TV side, it seems odd to me.”

He speculated the potential legalization of online gambling was the driver.

“It’s more likely an effort to try to leverage eventual legalization,” he said.

Though online gambling has been legalized to various extents in Nevada, Delaware and New Jersey, bills have not gone far in the California Legislature. Ehling also noted that legalization of bingo specifically is “not even on the table.”

“The crossover isn’t quite as strong there as people thought there might have been two or three years ago,” he said. “I think it’s much more likely they were looking at this really for what it is currently and how they can grow that business.”