So to recap,the party has figured out the arena, and in doing so have unintentionally acquired an NPC. This little dog named 'woof' eventally became a respected member of the party, with even the gruff Dwarf calling her "the world's smallest war dog."
This new group dynamic 'testing' seems to have gone well, thus the game was building into a campaign. So I needed to continue my 'Worldbuilding.'
My style of Worldbuilding is a series of outward spiraling idea builds. I usually start with a few basic sites (taverns, guild houses, maybe a blacksmith, and a few quick adventure hooks) and then let the play inspire touches of unique interactions. Those interactions inspire my behind the scenes expansion of the community, while my larger world grows as it occurs.
I try to keep building the outlying world ahead of the party, but take into account the things they have done, and the things they leave to others. In this way the realm is constantly evolving, as a living world. Other parts of the world are built as inspiration strikes, as tangents to the spiral build... so circles and tangents.
In this case, I started adding arenas to nearby sites, and thinking about how those sites would be influenced. 'Advancement' via skills or ability enhancement could wildly shake up a more traditional fantasy racial society, so I began building a whole pocket society of Tribal Champion style of Law. It was loosely based on a cross between classic chivalry, and the Battle Tech 'Clan' laws.
I also worked out several 'types' of arenas. The first obviously gave bonus from the loser to the winner. Others gave bonuses based on skills used, and some only gave punishments for losses. And all were magically linked, allowing for easy scrying... as a magical sports and government channel.
And the campaign turned into a sports-movie underdog story, with the party eventually challenging through the arena legal system for rulership of this pocket realm. This also led to a 'Test of Faith' for the party cleric as the arena changes disrupted the 'purity of nature' and made the arena 'champions' into 'abominations. And 'abominations against nature' (which she now had become) are against her god's teachings. And even with the eventual BBG (Big Bad Guy) who had built the arena system as a slight XP leach conduit to power his attempt to ascend to godhood...
The original idea had been loosely based on a 'Hollow Earth' style pocket realm (think Land of the Lost,) with the eventual goal for the party to try to close the link between the realms. After exploring and looting a bit would they would find out that to close the pocket realm (and avert major home realm disaster) they would have to gather and replace all the 'treasures' looted from the pocket realm before they could fix the break between the realms.
All of these changes came about from the question, "You aren't going to kill my dog, are you?" -- Now known in my family and local gaming community as 'The Woof Moment.'