From the day he first picked up a pipe, slipped into a velvet smoking jacket and decided to launch his own publishing empire, Hugh Hefner has proudly told anyone who'll listen that his career and self-worth revolve around two extraordinary creations.

The first is Playboy, the 55-year-old magazine that pioneered the social and consumer revolutions of the 1950s and 1960s, spawned a global multi-media brand, and to this day symbolises his hedonistic-yet-luxurious version of the American dream. The second great creation, Hefner says, is his own life: a roller-coaster of fame, fortune and willing blondes played out against the backdrop of 10236 Charing Cross Road, the 1920s pile on the outskirts of Beverly Hills that he calls home, but which the rest of the world knows as the Playboy Mansion.

Together, they represent quite a legacy. And, although Hefner has never been one to blow his own trumpet, his enduring ability to perform in both the boardroom and the bedroom (even as he approaches his 83rd birthday!) has elevated him to the status of national treasure.

Yet nothing lasts for ever. In recent weeks, the institution that is Hugh Hefner has been rocked by a string of public and private setbacks that have conspired to throw this elderly, somewhat deaf and increasingly frail man back into the public eye, for all the wrong reasons.

Some of his troubles revolve around the still-promiscuous love-life that continues to jollify the Hollywood gossip columns; others centre on his commercial interests, and are being played out in the business pages. Some involve a trio of blonde girlfriends; others a haemorrhaging share-price that leaves his entertainment firm facing an uncertain future. All, however, boil down to a single problem: Hefner's aura of Gatsby-esque sophistication is ever more at odds with his advancing years, and a changing world. The instinctive connection with the zeitgeist that was the secret of his success, and which saw him turn Playboy into one of post-war America's greatest cultural powerhouses, has apparently started to disappear.

On the home front, Hefner was last week cuckolded by not one, but two girlfriends (one of them the supposed love of his life, someone he'd hoped would remain with him until his dying day) leaving him deeply depressed and feeling, in his own words, "like roadkill". At work, his magazine's profits have evaporated and its circulation is in free fall, forcing Hefner to cut back on staff – and, for the first time, to invite paying punters to his once-exclusive private parties. It has made Playboy, a brand that once looked cheeky and cutting-edge, seem out of touch and increasingly seedy.

So, as he enters old age at the Playboy Mansion, with its famous grotto, circular beds, "getting to know you" room, and walls that if they could speak would be able to fill an encyclopaedia of Hollywood misdemeanour, Hugh Marston Hefner is facing a sobering reality: his two great creations appear, after all these years, to be unravelling. And for now he seems powerless to stop it.

The pouting face of Hefner's current troubles is Holly Madison, a former glamour model who is 28 years old, boasts measurements of 36D-23-36 (with the help of extensive surgery), and has for the past seven years lived at the Playboy Mansion as one of his official girlfriends. Madison is one-third of a pneumatic trio of blondes who star in The Girls Next Door, a TV documentary about daily life chez Hefner. Her status, in the show and in real life, is "No 1" girlfriend, meaning that she shares his bedroom, while the other live-in love interests, Kendra Wilkinson and Bridget Marquardt, occupy smaller billets down the hall.

Last week, this cozy domestic arrangement suddenly fell apart. After weeks of frenzied speculation, on Monday Madison confirmed rumours that she had left Hefner for a younger and wealthier model, the celebrity magician Criss Angel, telling cameramen outside a Los Angeles nightclub: "Hef and I are no longer together."

The revelation left Hefner deeply upset. More pressingly, it also represented a severe setback for his long-cultivated public image of master swordsman, on which Playboy relies.

But worse news was soon to follow. The following night, Kendra Wilkinson also confirmed rumours that she had ditched Hefner, telling the chatshow host Chelsea Lately that she was now passionately in love with a Philadelphia Eagles gridiron player called Hank Baskett – and had been indulging in "cybersex" sessions via Skype, which she described as "way better than phone sex", from her room at the mansion.

A triple whammy may not be far off, either. Marquardt, the eldest of the trio at 35 and the last officially remaining on Hef's sexual roster, has so far failed to comment on speculation that she too is considering her position. She is currently several thousand miles from Hefner's watchful gaze, filming a travel documentary in Europe.

For any man in the public eye, this would represent a bad week. For Hefner, always a creature of habit, it has made for a bewildering upheaval in the unique domestic set-up he has enjoyed since separating from Kimberley Conrad, his second wife and mother of two of his four children, in 1999. At this point, a brief history lesson: from the moment he bought the mansion in 1971 – excluding the decade of his marriage to Conrad – Hefner has filled it with a rotating cast of girlfriends, who are given a weekly allowance in cash (roughly $1,000 at present) together with being fed, watered, and provided with health insurance, a car and free plastic surgery.

Despite rumours to the contrary, he enjoys energetic sexual relationships with them all (thanks, in recent years at least, to Viagra), and in effect lives out the hypocritical male fantasy of a storybook sheikh, expecting girlfriends to remain monogamous despite his own promiscuity. The harem obeys a 9pm curfew, except on two nights a week when Hefner takes them out, always to a restaurant on one night, a nightclub the next.

To some, this set-up sounds suspiciously like a form of prostitution; to others, merely eccentric. But in all these years, Hefner has only twice made concessions on it: first, when he met Conrad, who appeared as a "playmate" in his magazine in 1988 and married him a year later; and when he first encountered Holly Madison in 2002. At the time, Hefner was three years into what he describes – like a Picasso of the bedroom – as his "blonde period," squiring up to a dozen official girlfriends at any one time, none of whom were more than half his age (a lifestyle that coincided with a minor renaissance in his public image).

Then, along came Madison. Although she seemed little different from hundreds of previous girlfriends – short stature, dyed hair and a CV that included a spell as a Hooters waitress – she had since childhood been fixated by Playboy and was vastly knowledgeable about Hefner's career, which no doubt flattered his elderly ego. The two shared a laconic sense of humour, similar interests, and an apparent spiritual connection. Soon, they were virtually inseparable. In 2003, Madison was invited to move into his room (with its famous revolving bed) in a newly created role as his "No 1" girlfriend.

According to Hefner, their relationship developed into a deep and genuine love affair. Though he never gave up his other girlfriends (Madison never asked him to), friends and acquaintances concur. Steven Watts, a professor of history at the University of Missouri who last month published Mr Playboy, a biography of Hefner, says that for five years Madison has represented to Hefner something akin to wife, mother and lover combined. "Since Hef separated from his wife 10 years ago, there have been a lot of girls; seven at once, at one time. But Holly has always stood out," he says. "Theirs has been a very serious relationship, from 2003 until the very recent past. They were seriously involved. In fact, Hef told me on several occasions that it is the best relationship he has ever had, and that he wanted it to last the rest of his life."

So Madison's departure represents something of a personal tragedy for Hefner. Last week, he gave a distraught interview to Us Weekly, blaming the split on the failure of repeated attempts to have children with her, together with his refusal to make her his official third wife. "If she says it's over, it's over. But like I've said before, she is the love of my life, and I expected to spend the rest of my life with her," he said. "We tried to have a baby earlier this year and it didn't work out. With my sperm count, it's not possible. I was willing, but it was not possible. She became very depressed... I did too. I've been feeling like roadkill."

The tragedy of the situation is that Hefner's promiscuous private life, for so long a source of great personal pride, could now have contributed to him losing the one person capable of making him truly happy. While many will find it hard to sympathise with a wealthy man who has made the metaphorical bed he's forced to lie in, those close to Hefner say he now worries about spending the rest of his life searching for a soul mate. He is a surprisingly romantic individual, they say, who is particularly prone to a broken heart.

"He may not believe in monogamy in the traditional sense of the term, but deep down, Hef is a romantic," Watts says. "What he really likes more than sex is falling in love over and over again, in a sentimental way. And, make no mistake, what's happened recently has really cut him up."

A broken heart is one thing. A broken wallet, however, would be quite another. And in recent years, the foundations of Hefner's vast wealth have entered a period of increasingly rapid decline.

Rumours about his firm's future have swirled around Wall Street for months. But last week, the first real evidence of trouble emerged when the Los Angeles Business Journal revealed that he was "eyeing his household staff and other assistants for possible cutbacks". For the first time ever, it added, he will resort to selling tickets to the famous private parties he holds at his Gothic Tudor pile. "The mansion's hedonistic grounds have long been rented out for corporate events, but Hefner's private parties have been free to those invited," it reported. "Now, John and Jane Q Public can buy their way into some of those events – albeit for a hefty price."

Tickets to parties hosted by Hefner will sell for $5,000 (£2,870) to $25,000, it reported, depending on the event and the celebrity guests. An invite to this month's Halloween party, which in the past has drawn celebrities such as Paris Hilton, is going for $10,000. In the past, Hefner hasn't charged for such events because he hasn't had to: the rest of his company, Playboy Enterprises, has been very profitable. As a result, the mansion (which the firm bought for $1m and leases to Hefner for $700,000 a year) has been allowed to run as a sort of loss leader for the Playboy brand.

Lately, however, shareholders have grown increasingly worried. Playboy Enterprises is run by Hefner's daughter, Christie (Hugh is its figurehead, editor-in-chief, and owner of roughly 30 per cent of the shares). It operates out of his home town, Chicago, and was yesterday trading at $2.33 a share, down from $12 a year ago. In 1998, those same shares were worth $32 each. They seem now to be locked in a spiral of relentless short- and long-term decline. The company's spokesman failed to return calls and emails from this newspaper regarding its financial position but, speaking to the Los Angeles Business Journal, Martha Lindeman, Playboy's senior vice-president, claimed that reports of Hef possibly filing for bankruptcy were "absolutely untrue and absurd".

But, in business, it's difficult to argue with the bottom line. The company's most recent report to shareholders reveals that, in the three months to June, the firm lost $2.1m, with revenues declining by 14 per cent to $73.4m from $85.7m. As a result, the firm has outsourced various parts of its operation and is looking to cut down on its 789 employees – imperilling the future of many of the maids and gardeners (but not, so far, the bunnies) at the mansion.

If you want to understand the reasons behind Playboy Enterprises' decline, look at the pages of Playboy itself, the one part of the operation Hefner retains day-to-day control over (licensing, broadcasting and other areas were long ago handed to Christie, 55, daughter of his first wife Mildred, whom he left in 1959). Once, the magazine was among the most respected publications in American journalism, with a circulation of seven million. It carried exclusive interviews with the likes of Bob Dylan, Fidel Castro, Woody Allen, Johnny Carson, Norman Mailer, Stanley Kubrick and Ray Charles. Contributors included Allen, Ian Fleming, J Paul Getty, W Somerset Maugham, Vladimir Nabokov, Jean-Paul Sartre and Kurt Vonnegut Jr. It was, if you like, a thinking man's read.

Most of the credit for this goes to Hefner, who famously started Playboy in 1953 after buying the rights to a nude picture of Marilyn Monroe with the help of several loans, including one from his mother, Grace, who had raised him in middle-class respectability in suburban Chicago.

Recently, though, Playboy has started to look its age. It is no longer agenda-setting, and its editorial highlight each month is a couple of question-and-answer interviews (this month, musician Pete Wentz and actor Kevin Connolly) and pictures of scantily clad, identikit blondes, shot in a glossy style that feels distinctly 1980s. Where serious US magazines can feel like phone directories (a recent Vogue was more than an inch thick), Playboy is a mere 132 pages. Commercial magazine and DVD porn have been devastated by the internet. Playboy, having for years faced rival publications such as Penthouse and Hustler and lads' mags such as Maxim and FHM, is finding it tricky to perform: US monthly circulation fell almost 10 per cent in 2007, to 2,790,300.

"It used to be a pretty good magazine, with extraordinary interviews and long analytical and investigative pieces," says the British journalist Russell Miller, who wrote a history of Playboy in the 1980s. "It had been an innovative magazine, for sure. But even back when I was looking at the company, it was struggling, and Hefner's whole empire was sustained by a gambling venture in his London Playboy club."

In truth, Playboy Enterprises' business model today is similar to the 1980s version. The magazine is a figurehead for a wider branding and lifestyle operation, involving opening nightclubs and casinos around the world (a new London venture, mooted a few months ago, has been shelved). But several have yet to repay their investments.

"There's little doubt that this has not been one of the high points in the financial history of the company," Steven Watts says. "Part of the problem is the wider economy. But I would venture two other theories. The first is that Hefner's operation is a victim of its own success. So many things have copied Playboy that it's no longer the fresh face on the block; its long-term appeal has run out. The second is that lots of long-term investments have not yet come to fruition. For instance, in the last few years, he has invested heavily in building a large, new gaming complex in Macau. It's still not been completed, and they have sunk a huge sum into it."

Playboy has always been a unique company, of course, and Hefner has for years made a habit of confounding naysayers. But in a world entering recession, and with business facing a combination of challenges unrivalled in modern corporate history, he'll need to be on top of his game.

In the recent hit comedy film The House Bunny (starring Anna Faris as a cutely stupid Playboy bunny who leaves the mansion to take up residence in a local sorority house), Hefner takes a cameo role in which he looks healthy, confident and 20 years younger than he actually is. The film portrays his household as a hedonistic paradise, full of smiling, happy, healthy people. But, in reality, it is by all accounts anything but. In her recent memoir Bunny Tales, Hefner's ex-girlfriend Izabella St James described it as something of a gilded cage, in which vulnerable women were used by Hefner and later tossed aside.

"Initially you are overcome by the glamour and glitz and the attraction of Hef and this life in Hollywood," she said last week. "But I found that as you get older, and I was there for more than two years, I became lonely from not having an intimate connection with one single person. You always shared, so the relationship couldn't run very deep, and I felt exploited."

St James further contends that Holly Madison's decision to leave Hefner lays bare the potential problems of a system in which Hefner is surrounding himself with girls who are attracted to him because of who – rather than what – he actually is. "By putting Holly, Kendra and Bridget at the centre of The Girls Next Door, he made them celebrities in their own right, which gave them exposure and contacts, and opportunities they never would have had without the show. And guess what? When he gives someone an opportunity, they leave. Holly swore she would be there until she died. Well, now of course she has found someone with deeper pockets."

The obvious danger is that Hefner will enter his nineties without any true friends. For now, of course, his future is no means entirely bleak: he has enjoyed a good run, retains an enviable lifestyle, and is blessed with genes that allowed his mother to survive to 101. However, there are signs that he has become troubled by his legacy.

"Legacy was one of the reasons he agreed to co-operate with my book," Watts says. "He saw me as a serious historian. I would stress two things about it. The first is that Hugh Hefner had a pioneering role in the sexual revolution, and was one of the critical figures in post-war America. The second is his role in the consumer revolution. He was at the cutting edge of that idea, in the Fifties and Sixties, of economic abundance being synonymous with what it meant to be an American. Playboy defined the good life, good clothing, food, wine, sports cars. It was a primer for a young man of what it means to be a sophisticated consumer."

Others aren't so sure. "I thought he was a charming individual, very nice and hospitable, but his view of himself, which I couldn't share, was in terms of his influence," Russell Miller says. "I do question him claiming credit for the sexual revolution. Fine, Playboy was a factor, but it wasn't the prime motivator. He believed Playboy had done so much for US society, but I'm not so sure."

For now, Hefner is doing what he does best: trying to get over his broken heart (if not his crippled business) by filling the new vacancy in his roster of girlfriends. In her TV interview last week, Kendra Wilkinson said of the mansion: "There are some random ass hoes wandering around up there... I lock the door of my room when I leave. I cannot have anyone stealing my stuff. But of course, I do want Hef to be happy."

Hefner last week claimed to have two new girls in his life, 19-year-old blonde twins (and Playboy models) called Kristina and Karissa Shannon. He told Us Weekly they would "probably become my girlfriends". While they may or may not make him happy – and they certainly won't fix his troubled business – the duo will at least demonstrate that there's some life in the old dog yet.