I don't think this is something the judges need to get into too much, and I think everyone is making this more complicated than it needs to be. All you need to do is set up a similar location like the Mystic Pearl. Just say that somewhere in Venza there's a combat arena that's enchanted for non-lethality. The owner charges admission to watchers, but doesn't pay the gladiators.
If two players decide they want to have it out for whatever reason, they can go to the arena and fight it out. If they feel they need a GM, they can get one. If the GM wants to add spikes and pits and environmental hazards, sure why not? Heck, maybe they can ask other characters to second for them in-character. Then they create a dueling thread, resolve whatever they want to resolve, and walk away. There's nothing that the judges need to do unless they want to.
Here's a quick proposal. In the slums of Venza, down by the docks, stands the Pit of Blood. The Pit is a huge, rambling warehouse that stinks of old meat and strange chemicals. The walls hold row after row of balcony seating, while the floor is bare, hard-packed earth ... usually. For special fights, a variety of dangerous contraptions can be installed, and magics can be used to create pits and ramps, areas of darkness, and shadowy conjurations.
The most strange and notable feature of the Pit is the Spell of Undying that has been cast on it. On the killing floor, grievous harm can be inflicted, but death cannot claim anyone. Wounds that would kill a man many times over cause nothing more than unconsciousness and tremendous pain. (Mechanically: Fights work as normal, but death doesn't kill you, just knocks you out.)
No one besides the ownders know how the Spell of Undying actually works -- there are ancient rumors of such a spell, but it had been thought to be a myth. Where the owners discovered the spell and how it is maintained remain a mystery.
The Pit is jointly owned by an aasimar cleric Benjar Grell and a halfling wizard named Hul Egan, although there are rumors of a shadowy third party that the other two report to. Benjar serves as the face of the Pit, and is its announcer, while Hul manages the finances. Both Benjar and Hul are unsavory types: Benjar relishes the blood and pain of the contestants, and the healing he provides is ... unsettlling. And Hul is interested in nothing more than money, by any possible means. Nonetheless, the two of them are close friends. A variety of large, seedy men work as bouncers and stagehands.
The Whitecloaks of Venza tolerate the Pit, but only barely. Several of them suspect that there are links to criminal enterprises and dark forces, but nothing can be proven. And since the nobility has taken a liking to the gladatorial games, it has become doubly hard to investigate.