It makes no sense to me that I cannot bet on my own life when I enter the Arena. The idea that Owyn doesn't handle bets, sure that makes sense.
But why couldn't a character just find someone in Imperial City who would give me odds on my chance to survive, take my money, and then (perhaps begrudgingly) payout when I show up having won the fight?
A complex way to realize this would be if there were a whole network of bookies, kingpins, thugs, etc.
A simple way would be "Vinny the Bookie." He stands on the left side of the Arena Bets chest. He could be any type of NPC. When you speak to him he says:
"I'm Vinny duh Bookie. You plannin' on goin' down thar and fightin' in the Arena, yuz awtah be talkin' ta me furst. Take out a liddl 'Life Insurance Policy,' Know whatta mean!?"
You get the following choices to respond:
"What do you mean? Bet on my own life as a gladiator!?" [progresses dialoque with Vinny]
"I'm not interestd tough guy." [closes dialogue with Vinny]
Vinny progresses "Say, ewer a smaht kid! Yeah brainiac, dats exackly what I mean! I give you odds on your chance ta survive your next fight, you place yur bet--meaning you hand me dah money--if you win, den you come back and collect on your wise investment."
The Player then has the following response options
"That sounds totally barbaric Vinny. I am shocked and repulsed." [closes dialogue with Vinny]
"Hmmm, that does sound interesting. What kinda odds would you give me Vinny?"
I would think that all of that above might not be too difficult to implement in a mod. For the next parts, there are simple and complex ways it could be done.
Simple: Vinny calculates your odds based on some measure of your power (hit points or magicka or something) * Septims Vinny has lost on you previously. I'm fiddling with Excel to try to figure out an algorithm that would effectively make him unwilling to give you better than 1:1 odds if he had already lost some relatively large amount on your for any given Level (say for example 3000 septims).
So to wrap up this post, after he tells you your odds, you get a choice to bet perhaps with amounts like those you can get with the other guy, then if you survive you can come back and collect.
Of course, you can simulate this using the console commands and some dice to randomly allocate odds for yourself which is exactly what I've been doing myself. But I thought that a simple mod like this might be neat, so I'd toss the idea out there.
Happy to try to work with anyone who is capable of implementing this by hashing out more ideas.