Losing the slave to the arena seems a bit harsh imho. There should be an opportunity to bail them out and pay their monetary equivalent (or double that, if you feel particularly vicious) instead.
Also, smuggling items makes no sense for combat with no equipment and items, since anything your slave takes into battle with them is immediately visible to the audience. You could instead pay Sebastian to rough your opponent up before the battle, shaving off some of their HP or hobbling them and reducing their speed, etc.
Also also, 500g for level 3 seems a bit too much, especially since the prize for level 5 battles is nominally 530g (if you sell the essences at the market). Maybe make it 300g instead?