They broke the balance
The same joke is not funny, when you hear it the fourth or fifth time.
This show was refreshing for multiple reasons, one of the big ones being the delicate balance between 'good guy' and 'bad guy'.
More specifically, the blurring of that very thick, obvious line you usually see. Johnny was the 'bad guy' (although, if you watch the first movie with 'Daniel being the instigator (if not the bully)' in mind, you can see the other side of the fence; Daniel actually DID often instigate, sucker punch, and use unnecessary ego-based violence - even in situations, where EVERYTHING would've been fine otherwise.
Did he really HAVE to douse Johnny with the shower and then run outside to cause multiple car accidents? Was this behaviour of a helpless, innocent victim good guy, or an instigator / bully?
In any case, this show was almost based on this new perspective to an old movie - Daniel isn't as innocent as the movies lead us to believe, but because Miyagi's endless wisdom clouds our judgment, we can't see this powerful motorbiker as anything but Daniel's enemy, which makes him a bad guy.
The brilliance of this show was that Johnny WASN'T shown as a bad guy, and a more balanced perspective to the same events was shown to the viewer. Daniel wasn't shown as a good guy, either, I mean - WHO thinks car salesmen are GOOD people? WHO? (I hear crickets so clearly now)
This delicate balance was kept throughout the first season - the 'good guy' did bad and deviously evil things (the strip mall deal), the 'bad guy' tried to help other people in various ways, and rescues a teenager from being hospitalized.
You don't even know whom to root for at first, then you begin to realize everyone is just a.. well, 'human being' would be going a bit far, but everyone is just an individual with their problems, trying to make it in this life in some humble way. Johnny was more of a victim of circumstances than downright evil, so this show made you root for the former 'bad guy' or, as the amazing Demetri put it, 'ex-a-hole' (I am not going to write that word here).
When you look at the last two seasons (4 and 5), you can immediately realize they broke the balance. Now there are obvious villains (Terry Silver has no redeeming qualities, neither does Reese - the Reese-flashbacks and sympathy garnering is 'too little, too late' - we already know this char is 100% cartoony evil, sigh), and obvious good guys.
(Though why a 'good guy' is trying to pick a fight insted of offering to pay for a ride, is beyond me, but that's just making him cartoony)
I think this show jumped the shark the moment they introduced Terry Silver back. He could have been a 'conflicted hero', or 'partially evil but with regrets and confusion'. He had the 'hippie side' to him that could've emerged to lecture his evil, maniac side, he could have tried to get his insanity under control, and sometimes failed, then regretted it, etc.
THEY COULD HAVE KEPT IT A GREY AREA.
But instead, they broke the balance and created OBVIOUS, 100% EVIL BAD GUYS.
Why?
Why did they change this from a 'relatively relatable and believable, funny take on what would've happened to these characters in their adult years' into 'saturday morning cartoon with cardboard villains and massive, epic fights', I will never understand.
I guess five years is a long time to stretch a joke or viewpoint, the story was too thin to begin with, but did we really have to keep seeing the same hothead Daniel after all his insights and epiphanies?
Did we have to keep seeing the same Johnny becoming an alcoholic bum again, and forget all his wisdom he learned? Suddenly he's just an aggressive bully again - more than he EVER was before.
He had SOME common sense to him before, suddenly he lost it all? What?
After thinking about this long and hard, I would say the first season is where the real story is, where everyone more or less shines, where everything that needs to be told is actually told, season 2 is more of an unstable, fluctuating mess that doesn't know what to do with itself (Stingray - one word says it all).
Season 3 balances things out, clears out the fluff and filler a lot, carves out a lot of potential, creates amazingly beautiful moments in the Japan trip, brings Chōzen (why do people always forget the long wovel when Rōmajizing?? In hiragana, it's written as 'Chousen' to signify that it's not 'Chosen', the 'o' is LONG) back, and gives us so much promise.
Season 1 is brilliant, partially because the whole idea is novel, but partially because it's so darn well done, you can't really fault it. The potential is there, the story could go in any direction, the pieces are carefully set on the table.
Season 2 is such a mess, it's hard to know what to say - it has its really good moments, but also adds the teenage drama, and the climax is needlessly 'dramatic', to say the least. It's like 'everything bad happens' that anyone could be afraid of happening. Just.. why?