Brothel or bust: Hard times at Nevada's bordellos

David Paul Morris | Bloomberg | Getty Images

Dennis Hof, at his Moonlite Bunny Ranch in Carson City, Nev.

Dennis Hof is on a buying spree.

The owner of the Moonlite Bunny Ranch had just two brothels a few years ago. Today, he owns seven and a strip club. The expansion of his empire comes as Nevada's brothel industry struggles to recover from the recession. And though Hof said his business is increasing, most of his competitors are having a tough time.

"I've seen it go from 28 brothels to 17 or 18 now," he said. "My business at the Bunny Ranch is the same and maybe a bit more than it was five years ago. ... Other brothels have all suffered a serious, serious hit. I've taken the income I made from [my holdings] and bought five more."

The decline in business at these establishments isn't the result of some newfound virtue on the part of former customers, nor does it have anything to do with Sen. Harry Reid's attempt to shut them down two years ago.

It can largely be blamed on two things: Less spending money and the Internet.

(Read more: Earn more money, when you have more sex, study says (seriously!))

"The brothels survive off what we call disposable income," said George Flint, a lobbyist for the Nevada Brothel Owners Association. "There's not a lot of that to spend right now. A lot of gentlemen who, for years, have gone to a brothel don't have the funding that they did five or 10 years ago."

Not surprisingly, Nevada's brothels aren't cheap. Most have a minimum charge of $150, with some charging as much as $300 minimum, according to Flint. At Sheri's Ranch, which Flint calls one of the state's more upscale spots, the average transaction works out to $900. (Exact prices vary, as providers are considered independent contractors and set their own rates.)

The average sex worker at a brothel will earn about $3,000 a week after splitting the proceeds 50/50 with the house. Some earn considerably more.

The drop-off in the overall brothel business—estimated to be between 20 percent and 50 percent from its highs—is driving more escorts online.

Because they have rent or mortgage payments, as well as other overhead, brick-and-mortar services can't dramatically lower their costs. But by arranging a rendezvous directly with a client, the escort can offer a lower rate per encounter and make more money.

And, thanks to the Web, arranging a meeting with a sex worker (the preferred title of some brothel employees) has gotten considerably easier. Many escorts now have dedicated websites, and there are innumerable other ways to find them online.

"As business has fallen off, many of the girls have moved from the brothels to illegal prostitution," Flint said. "They don't always do that in an attempt to be illegal, but in the high-tech world we live in, a lot of girls have their own website, or ads on Craigslist, and a lot of girls are taking some pretty big chances right now."

The risk for clients rise, too, as prostitutes working illegally can bypass the mandatory checks for sexually transmitted diseases and infections that brothel employees must have monthly, and sometimes more frequently. Escorts found on the Web may not always demand a condom, either.

Flint also cites the rising price of diesel fuel as a possible reason for the decline in business, but Hof discounts that theory.

"A driver has a time window," he said. "So when you get in that truck, you've got 11 hours to get something done. You have to get out of that truck after that time. They attribute [the dropoff] to gas, but those trucks are still running across the country. The problem is they don't stop at these brothels because that's not their logical stop point after an 11-hour run."

One of his brothels—the Alien Cathouse, which doubles as a truck stop—has actually seen a spike in business, Hof said.

(Read more: What would you do to avoid paying the bills?)

Traditionally, slowing industries might boost marketing budgets to attract new customers. Brothels, however, are prohibited from advertising outside their local area. That means a Carson City business can't hand out flyers in or erect billboards in, say, Las Vegas or Reno (two places in Nevada where prostitution is illegal but remains prevalent).

Websites are allowed, though, and Hof says his online presence is part of the reason his locations have been successful. His sites average 200 million hits a month—often from international visitors, who end up making the trip to Nevada after chatting with the women.

It also doesn't hurt that Hof is seen regularly on the HBO show "Cathouse, the Series," which focuses on the Bunny Ranch, or that he has another show on Cinemax, "Working Girls in Bed."

Of course he's leveraging that fame to help his enterprise prosper, he said, adding, "When the world decided to throw a recession, we decided not to participate."

Other owners, who lack that degree of notoriety, aren't going away, but they must learn to deal with income that is notably lower than it once was.

"All of the brothels in Nevada aren't about to go bankrupt," Flint said. "They may not survive as profitably, though. And that affects the ability of women to find work."

—By Chris Morris, Special to CNBC.com