[kanelbullar]

Over time, almost everyone in the team looked for opportunities to transfer to other teams (and sometimes companies) that looked like they were having more fun.

You know, the actual work you have your people do (along with the monetary compensation, and of course the extent to which they're pleasant to work with, you know, while at work) really (really) ought to be sufficient motivation to show up in the morning and get stuff done, over the longer haul.

By the same token -- if you feel you not only absolutely need extracurricular activities (let lone that your people need to "all hang out with each other socially" at odd hours of the day and night) to hold the team together... but feel the need to point to a deficit in this area as the primary reason why your team does not succeed... then you're definitely missing this bigger picture.

Eventually, the team's output suffered as turnover increased, until eventually, he ended up leaving. The net effect was hugely disruptive to the company.

Indeed. It sounds like you lost a good employee (and many others like him that he could have potentially recruited into your company) for the sake of the (perceived) benefits of maintaining a certain monoculture -- predicated in turn on a certain stereotype of fun and "energetic" younger employees. And how wonderful everything can be when you only hire people who fit that particular mold.