Tell me once again what the purpose of the LED is for and why does it need to be that large of an area. Thank you.
The size and shape? You'd want it smaller?
It looks good, kids love it, what more do you want?
For tracking, the shape of this area is perfect. It wouldn't have any angular tracking precision if it was small. The width allows the cameras to operate at 240 FPS with reduced resolution, while still maintaining angular precision, glitch-free tracking and recognition, and very little processing.
For both the player ID and the effects in game, a small dot in front would be unnoticeable with a quick glance or peripheral vision, unless it had a higher brightness density, which would be a worse proposition. If it was in your field of view, or the field of view of the other players, it would be very annoying. A large area light source is softer and creates soft shadows so what it lights up in front of you, your clothes, fingers, won't create the sharp edges that a point source would, the gaussian spread reduces the flashlight effect, which would otherwise be annoying. so with this peripheral vision, the brain is less likely to detect the shadows as shapes, it will feel more like an area glow in front of the player.
When playing party games, the large area glow makes everyone see with their peripheral vision who's turn it is, or who got hit, or whatever effect needs to be seen as an indicator in the physical location of the player instead of on screen. So far as I've seen, kids love the glow, it gives them something physical and tangible. I think it can improves the social aspect of party games, a constant link between the characters, the in-game events, and the physical players in the room.