Grandpa Mutou introduces Yugi, Anzu, and Jonouchi to the trading card game Wizards and Magic. He then shows him his most prized possession: the Blue-Eyes White Dragon, a card "so powerful that they stopped production". While Yugi and Jonouchi, deciding to play the game at school tomorrow, buy some cards; a teen with a suitcase enters the store.
Yugi recognizes him as Kaiba (from his class), who also plays Wizards and Magic. When asked to join them at school tomorrow, Kaiba claims that he's on a higher level than both Yugi and Jonouchi, which pisses off the latter to no end. Kaiba then sees Grandpa's Blue-Eyes and, realizing he could be invincible with it, offers him hundreds of cards in exchange for it. This shocks Yugi and his friends, but they're even more shocked when Grandpa declines Kaiba's offer. Grandpa explains that a gamer friend in America gave it to him, who is just as important to him as the card is. He says that when you treasure something, that something gains a heart, and Kaiba reluctantly leaves.
The next day, Kaiba watches Yugi and Jonouchi dueling (Yugi wins, of course). He then asks Yugi if he can see his Grandpa's Blue-Eyes again (which Grandpa let Yugi take with him as long as he didn't use it in duels), claiming that what Grandpa told him yesterday made him realize what it means to love the cards. Of course, Kaiba's lying through his teeth, and takes the opportunity to switch it out with a copy he made.
After school, Yugi tells Kaiba that he knows that he switched the cards, and asks for it back. Kaiba tries to deny it, but Yugi explains that he doesn't want to betray his Grandpa. Kaiba responds by hitting him with his briefcase and telling him, "It's not how you play the game, it's how you win or lose!" Then the Puzzle begins to flash.
Yugi challenges Kaiba to a duel to get the card back. But when Kaiba plays a card, the monster on it comes to life, shocking him. Yugi plays his own monster, which defeats Kaiba's (which disappears after it's defeated). Part 1 ends with Yugi stating that this is a shadow game, and a penalty game awaits the loser.
