The competition turns out to be a trap set by Baron von Rudloff, an ex-Nazi general who is still bitter over the humiliating defeat of his martial arts team at the 1936 Summer Olympics by Japanese martial artist Miyagi, who bribed the judges with diamonds at the time.

Steve wants to escape when his girlfriend and fellow karateka, Olga, is deemed unsuitable to continue as part of von Rudloff's team.

When Steve and Olga make their escape, von Rudloff sends Chico to travel around the world to recruit the best fighters for his team.

Meanwhile, von Rudloff hires Ruell to kidnap Olga, who is now training with her teacher Lorraine, in an effort to get Steve back on his team.

Baron von Rudloff finds a gun on the ground and, knowing that he cannot ever accept defeat, takes his own life.