I was reading the post on Fencing and I had an idea, so I thought I'd spitball here.
There is an authority item you can build that kind of looks like an area completed roundpole fence that has a gate on two of its sides.This will provide an arena, and all activities going on will be visible by outside spectators. Inside, building, crafting, real combat, farming, travelling, etc. are disabled except sparring. To enter, there must be an eligible person "in line" to enter on each side. This area would be free from range attacks from the outside, but is balanced somewhat by the fact that there has to be two people "in line" properly. Maybe there could even be a short timer to get in that can be interrupted by combat. The structure should also be able to be destroyed making the participants be forced into the open. If you log out inside, "Where you logged out" is replaced by "Outside the arena".
Obviously needs a little tweaking.