In either a remote fort in middle of nowhere, or underground in a city. If you go the city route, perferablly accessed via a hatch inside a building. That way if a person decides to use open cities, it will not conflict.
Criminal. I want it very seedy. From people who rejoice in slaughter, to kidnap victims thrown into the pit for enjoyment.
Features:
I want to be able to place bets, and spectate. For example bet on a slave winning vs a person who does it for the joy of slaughter. And the ability to "upgrade" my champion. Perhaps a market where you can pick out your champion, and then pay a fee to give him/her gear. (Like 10k for a set of ebony armor).
Catering: I want food/drink vendors, and drug dealers. Also for an additonal money access to human cattle for blood. (For vamps) Or a slaughterhouse for werewolves. (Transform and rip apart a helpless victim for food)
Being able to select certain types of fights I want to see. My champion vs a werewolf.. (or a werewolf champion vs silverhand?)
As for betting, I dont want it in the traditional sense of you putting money down on which side will win. (To painful to balance probably). What I'd perfer to see is if you pick a champion, you get a % of all bets, assuming your pet wins. The harder the fight your pet goes against, the higher the payout. If your pet dies however, its gone for good, along with your investment in its gear.