I really like this.

Imagine the last battle where you gather all your champions... A bunch of earless freaks with amnesia, scarred from years of battle... Cool.

OK, here's an idea, add diseases as negative traits after losing some battles, like plague, that can be transmitted to cities. But not cancer, that's reserved for the game itself

Is the amount of mana lost something like 10% of your total for each champion that has to retreat?  I know in WoM that when Sovereigns retreated they lost half their total mana.  I think 10% of total mana lost for each champion lost in a single battle would be a good amount.  If you lost 1 champion in one battle and then lost another champion in another battle, you would lose 10% of the mana you had at that time.  But if you lost 2 champions in one battle and then 1 champion in the next you'd lose 20% of the total mana at the end of the first battle and then 10% of total mana at the end of the next battle.  And if your penalty for one battle would be more than 100% of total mana (say your Sovereign and 6 champions in one battle) you'd lose all your mana (I think it would be too harsh to go into negative mana).

Of course you could just make it 50% of total mana lost for any battle where your Sovereign is defeated, or 10% of total mana lost for any battle you lose 1 or more Champions but not your Sovereign.  But it might be good to provide a bigger penalty if more than one hero is defeated in the one battle (for the privilege of still getting to keep them and warping them to the nearest town).

Will Sovereign receive negative traits?  Maybe their magic prevents them from getting wounds when defeated?

Will there still be a spell that allows a champion to retreat without suffering any injuries (Death Ward or somesuch)?

Well, I think it was put in partly for the AI, so they didn't get all their champions targeted and wiped out pronto, and also to prevent running out of champions.  But AFAIK, champions can still be killed, before they are recruited, by the opposite side (Kingdoms/Empires).  However I understand what you're saying.  Maybe there could be an option for custom maps/campaigns, if new champion spawning is possible (so they don't run out), for champions to die permanently?

I think also you should have a chance to get just "the wind knocked out of you" and don't suffer, as well as a chance to have the champion die.

I think it would be like Sovereigns in WoM.  When they get defeated, they get sent to the nearest of your faction's towns, and they are fixed to that town (ie. can't move out of it) for that number of turns.  Maybe in FE if a champion (but not a Sovereign, since they are inherently special) gets defeated again while still recovering from the first defeat, they automatically die?

I certainly don't agree with that, but we won't be able to "test" the hypothesis either ;.)

Well, I have tested it in other games, like Romance of the Three Kingdoms.  That game has a limited number of officers in it.  Now, as the time line priogresses, there are children "born" as they historically, would, but there is a finite number of champions.  These officers can be killed in a number of ways, they can be killed in battle, duels, or beheaded when captured.  One of the best strategies to win, although not terribly fun, was to capture and execute as many officers as you could.  This can greatly depopulate the game, and in some versions of the game, can leave you unable to "win" but leave you no resistance.  

If there are few champions in the game, having them killable certainly makes them precious, but almost so precious that you don't even want to put them in harms way.  If you make them killable, but high in numbers, they just become another generic troop.  If they are high in numbers, but unkillable, they replace armies entirely.  

Now low in numbers, but unkillable is the best solution.  They are rare, but not so precious that you are afraid to actually use them.  they are few, so they support armies instead of being the armies.  Also, the game, no matter how long you play (and some of us nerds have super long huge games) will be in the game.

Now, the dynasty system is no longer in the game, so there is no way to "replenish" our supplies of champions.  So with a set number of heroes, it is my strong belief that a low number of interesting and unkillable champions is the best way to go.  

I wonder if champions have mainetance costs. Would be fun to have an obese champion that holds feasts often, consuming a lot of food each season but in turn giving some other bonus (or not, or just being a good spellcaster for example).

Or another champion that likes to gamble away gold from your treasury, or another one who lives a luxurious life requiring you to build a palace for him to reside in that has a high maintenance cost.

All sorts of stuff would be possible to make unique champs in addition to these on-death traits.

Champions are the major source for spells. It would wreck the AI to lose high level champions. 

No opinion either way, though I am surprised people were against killing of champions

Again comparing with classic games (you know which ones I talking about, in particularly the one this one claims to take inspiraion from), the champions/heroes are usually "killable", in some games there are even rarer. Yet it still works.

That said, if it helps the AI, i guess why not? 

I agree that champion should die... but they should rarely die from losing a combat.

Thanks to Grizzyloin's reminder, yes, there should be a building called 'Prison'.   A % of defeated hero should be sent there, if built.  This offers an interesting mechanics for rescue missions!

Imprisoning the defeated champ should be the 4th possibility of what I've mentioned in Reply #36

From the video, I really don't like the teleportation of the defeated champion.   They should backtrack to the last allied city instead.   When they are walking, sometimes they are totally invisible.  At this time, they are considered as  independent champion,  that  they can be recruited by any player.

Instead of having the vague term of 'spending 6 turns to recover' as in OP, the champ should recover the lost HP by natural healing only.  Once they are of full HP AND reach the last allied city, they become automatically recruited  to the original owner.  It is more elegant.

Having these changes should be simple for developer, yet provide more fun & reality to the game.