Rocky invites them up to his room for sandwiches and drinks. Jerry arrives and tells the boys he and Rocky used to hang out in the old boiler room together, and that Jerry's initials are also there on the wall. What Father Jerry offers the boys - activities such as athletic programs (basketball) - are clearly not as attractive. The priest is unsuccessful in retrieving the neighborhood kids from emulating their gangster hero. One of the boys snidely remarks:

What do you think we are? A bunch of creampuffs or something?

But when Rocky dares the young gang members to play basketball, they are quickly convinced to join him at Jerry's gym. On the side of the court, Rocky meets Laury again, and learns that she is a social worker. He thinks she is quite a "snappy-lookin' dish":

Rocky: I can't figure out why some smart guy hasn't grabbed you off.
Laury: Some smart guy who's always in the headlines, huh?
Rocky: You could do worse.

In a memorable scene, Jerry attempts to referee their basketball game with a church group, but he cannot control their unfair, rowdy dirty tactics - there are many technical and personal fouls. Rocky becomes fed up with their behavior and takes over as referee: "According to the rules now, do you understand?" He starts throwing a few elbows, slaps, and punches himself and threatens: "Now you play according to the rules or I'll slap some sense into you." When they agree to play fairly, they are slaughtered, 32-8. Afterwards, Rocky collects their bet money. They want another chance to play the team and try to convince Father Jerry to set up a rematch the next day.

Rocky walks Laury home after the game. He realizes he is being followed, and drops her off safely. Then he hides out in the local drugstore. In a bloody shootout, the assassins kill one of their own, and Rocky escapes unharmed. Hearing shots, Laury rushes to the drugstore, fearing that Rocky has been hurt, and is relieved to see a different victim.

Rocky realizes he has been double-crossed by Frazier. He holds up the crooked lawyer in his garage and takes $2,000 from his safe, along with bank account books and other incriminating records linking corrupt city politicians to the racketeers. Rocky forces Frazier to call Keefer and promise to pay him the $100,000 owed to him the next day.

Rocky walks boldly into Keefer's office as planned to collect the dough, holding Frazier as security elsewhere. His ploy succeeds. Keefer immediately tips the police and sends the cops after him. Rocky hides the money and the incriminating records in a sealed envelope with the Dead End Kids. Police detectives are unable to find anything in his apartment and are powerless to hold him, lacking evidence. Keefer calls off Rocky's questioning by police when Frazier tells him that Rocky has incriminating records as well as the money. Rocky meets the gang members in the hideout and rewards them with some of the money. He then returns to his room and hides the remainder of the money in his bedposts.

Jerry visits, relieved to hear that Rocky has been released, but he is suspicious that Rocky is returning to his life of crime. He wonders why the boys haven't shown up for their basketball game rematch, and believes Rocky is to blame. Laury tells Jerry that the boys have been located at the local pool hall, passing out beer to everyone and tossing around dollar bills. They appear to be emulating Rocky's criminal ways, frequenting a smoke-filled pool hall with other hoodlums and gambling on games.

Following them to the pool hall, Father Jerry tells them that a life of crime is nothing to envy. He asks them to come with him to the gym for their return game, but they all have excuses. One of the gang members responds: "Look, Father. We don't fall for that pie-in-the-sky stuff anymore, see." In one of the most enjoyable scenes in the film, Father Jerry leaves and is razzed by one of the pool hall flunkies: "Can't you get them to go to heaven with ya?" Jerry punches him squarely in the jaw.

In Rocky's apartment, he promises his love interest Laury that her hard luck ways will soon end:

You been reading a lot of stuff about 'Crime don't pay.' Don't be a sucker. That's for yaps and small-timers on shoestrings. Not for people like us. You belong in the big-shot class. Both of us do.

He proposes that they go on the town to celebrate, and they end up playing roulette in the El Toro Club. He leaves her to gamble with chips and goes in the backroom to "talk business" with Keefer and Frazier. Frazier questions him about the accounts he took from the safe. Rocky uses them as "very good insurance, just in case you boys decide to change your minds." Rocky demands his original agreement with Frazier, 50% of his share of everything - in effect, becoming a partner in Keefer's nightclub. Blackmailed, Frazier amenably agrees to the deal.

Back on the dance floor with Laury, Rocky confidently expects a new life style with newly-acquired power and wealth:

How'd you like to give up that two-for-nickel job of yours and move in here?...just sittin' around lookin' pretty, dance a little, play a little, kind of a hostess. Give you a $100 a week in expenses.

Father Jerry receives an anonymous donation of a thick wad of bills in an envelope with a typed note:

"Dear Father Connelly: Enclosed please find $10,000 in cash as my donation for your future recreation-center. Good luck. A FRIEND"

Jerry refuses to accept the "hot" money, the result of gang deals. At the El Toro Club, he returns the bills in person to Rocky, explaining that he can't accept the donation. Jerry can read through his poker face, even though at first, Rocky denies being connected with the money:

What's the difference where the dough came from? In the first place, Frazer owed it to me. It was mine. And second, it's a whole lot better you get a chunk of it than him...Oh come on, don't be such an angel. You want to get the center built, don't you? Well, go ahead. Get it started.

But Jerry doesn't want "to build it upon rotten foundations." Jerry explains that even if he built the center with the money, outside the center there would still be crime, rotten corruption, and criminals on all sides to be honored and admired:

What earthly good is it for me to teach that honesty is the best policy when all around they see that dishonesty is the better policy? That the hoodlum and the gangster is looked up to with the same respect as the successful business man or the popular hero. You and the Fraziers and the Keefers and all the rest of those rotten politicians you've got in the palm of your hand. Yes, and you've got my boys too.

He thinks Rocky is a poor role model for neighborhood kids:

Whatever I teach them, you, you show me up. You show them the easiest way. The quickest way is with a racket or a gun.

Father Jerry unleashes a fierce, clean-up media campaign against the rackets and corruption. His courageous fight means condemning his friend Rocky and his crooked business associates. Rocky wishes him well, but doesn't think he will be successful against the community's professional hoodlums. Jerry asks Rocky one last favor - to not offer the kids any more money and not to encourage them to admire him. Father Jerry finds newspapers to back his campaign to bring the crooks to justice. Headlines read:

"Priest Declares War on Underworld Vice."
"'Investigate Rocky!'" Is Citizens' Demand."