Plot hole: The tournament that Daniel is in is the All Valley under 18 tournament, but we already know that he has graduated from high school and was about to attend college. His birthday is in December, so he must already be 18.

The Karate Kid III (1989)
Plot summary
Directed by: John G. Avildsen
Starring: Ralph Macchio, Pat Morita, Robyn Lively, Thomas Ian Griffith
Daniel stops learning from Miyagi and starts learning from a new master.
Daniel Larusso: I know you don't believe in fighting, but tournament karate isn't exactly fighting.
Mr. Kesuke Miyagi: Not exactly ping-pong, either.
Trivia: When Daniel is persuading Myagi to use his college money to buy a store for selling Bonsai trees, he takes a wad of cash, smells it, and says, "Hmm. Looks like money.smells like money." Ralph Macchio has practically no sense of smell at all, so just for fun he always makes a point to smell something in every movie he does.
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Chosen answer: First he could have just been out of practice, but the point they made in the movie was that his moves were old, so they knew how to counter the things he did in the past to win.
pross79