After investigating the guards were suspicious of what was going on the Paladin decided to leave saying he thought they were not handling the situation correctly. On his way out he decided to bump shoulders with one of the guards which got him an arrow in the leg. They then took him to jail (he cooperated) where they confiscated his belongings, and after the group convinced him to apologize they returned everything with the exception of his half-plate armor. As you can imagine he was quite unhappy.
The group at this point had about 3 hours until they were to arrive at the arena. The Paladin decided to go the main office and make a complaint. After an hour and a half of go-betweens and debates he was given a bag which in fact only had leather armor, and told he would have to wait until tomorrow for everything else to be settled as the people in the facility were leaving for the arena.
At this point the Paladin was quite unhappy but then fist bumped me saying, “Pro DMing.” We ended it there since the Druid had left prior and there were other missing people from that night. The group had entered 2 arena fights. The first night was fighting monsters, the second night was fighting other humanoids, and the third night is 1v1 combat. To enter the 1v1 combat competition the character has to have played in one of the other competitions prior and won. The group showed an extreme interest in this and I hope to have them return to play 1v1 once their levels are a bit higher and they understand their powers.