Was just thinking.....isn't a one-level loss a bit harsh of a penalty for losing in the arena? This only ensures that those who start losing,
keep losing. In addition, it's going to pile on our characters pretty heavily if we want to have any in-party rivalry.

It's not like the 'Greater Beings' are limited, so there's no reason they would need to do something like this.
Some alternate ideas:
1. Loss of arena points
2. Loss of access to The Store, or lost saved-money.
3. Loss of an item or two - maybe allow looting under certain guidelines?
4. One tally mark towards "You join the crew roasting in the Abyss for outside-the-grounds violence." - motivation to fight and win - some characters won't be motivated otherwise.

Or, just a return to permanent death - everyone here was, presumably, dead at one point anyway.
5. Being 'out of action' for X number of days - prevents gain of arena points and social interaction - probably by means of waiting X days for
true resurrection.
6. Other?