The problem is not unique to waterskiing. There is a swimming pool in every neighborhood, and it's not a particularly expensive sport, yet the number of competitive swimmers is down. Participation in Little League, baseball and softball, is down over 20% since the 90s. Tennis is another sport where numbers are way down. There are hundreds of explanations, and lots of research papers have been written.
Three of the issues that I see as pertains to waterskiing are:
1) The trend toward specialization in sports amongst kids. By the time kids are 5 or 6 years old they are being told to pick one sport. Unless your family sport is waterskiing, there's a good chance you will have little to no exposure to waterskiing before you get out of College.
I worked for a wealthy CEO who had all the access in the world to boats and lakes. His kids had never skied, or done any water sport for that matter, because he didn't want them to get hurt and miss their "chosen" sports of Baseball and Softball.
2) There are dozens of sports, and pseudo sports, that just didn't exist, were not competitive activities, or were not popular 20 or 30 years ago. Think about it: triathlons, ultra marathons, lacrosse, tough mudders, wind surfing, kite surfing, kayaking, paddle boarding, rhythmic gymnastics (who came up with that), competitive chearleading (are you kidding me), bikini fitness contests (sometimes nice to watch, but a sport?), hundreds of varieties of martial arts competitions, adult kick ball leagues, wally ball (seriously, wally ball), team handball (an Olympic Sport), curling (any game you play with a beer in your hand is not a sport), on and on. Heck, competitive eating is now called a sport and pays better than competitive water skiing. Competitive poker gets more air time than any of the sports in which I participate. All of these sports or competitive activities draw from the potential pool of water skiers.
3) Be honest, water skiing was always a fringe sport. Growing up in the 70s, I looked forward to the two or three times a year that skiing would appear on Wide-World of sports. Here in Northern California, where I grew up, we had the LaPoints, Suyderhoud, and many others, not to mention Golden Gate and Berkeley Ski clubs. Still, few of my friends knew much about water skiing. Today, the sport has been further diluted with competitive wakeboarding (boat and cable), wake surfing, wake skating, knee-boarding (though I think that has died somewhat), not to mention other water related sports that don't require a boat such as surfing, kite surfing, paddle boarding, etc.
My $.02.
BKH