I think the main reason it's never been done in a AAA sort of title as you seem to be asking for is because, even if the dev only did two characters, the crowd, and just one on one fighting, it would still take a lot of time and money. They'd still have to get artists, programmers, modelers, animators, and so on, and then pay them for the months worth of work they'd have to put into it for what, in the end, would be a game almost nobody would likely pay more then $5 at best. If they did try making into a full game with multiple characters and such but still kept the main focus on 1-on-1 fighting, then it would still be a fairly niche market that would make it very hard to recover the investment, let alone make any sort of profit from.
That's why gladiator-type things such as that are added on to games such as Oblivion, as then it isn't too hard to add it in as something that not everyone has to play if they don't want to, but some would enjoy. But at that point, it has to (or at least it's much easier to have it) follow the gameplay of the main game, and you don't see too many games based around realistic fighting in a way such as that.