There was far less diversity in the Arena before the introduction of mods. Two people with the same team and gear would have the exact same stats, leading to coin-flip decisions which made for a very stale experience. Adding mods allowed people to come up with more interesting team compositions and have them be potentially viable with the right setup of mod stats.
And one of the first changes made to mods was to move to a more percentage-based stat system, so that you didn't have level 50 characters with vast amounts of protection and health, for example.
On top of that, there's a built-in factor in the tenacity/potency check to prevent lower level characters from landing debuffs on higher level characters as easily, as well as lower levels of abilities/gear allowed, so it would be very difficult for a level 65 team to legitimately compete with a level 85 team.