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The Colleseum is in the northwest part of the world map at the very tip. It
looks a bit like the Opera house on the outside so don't be fooled by it.
Inside you will see a familiar face, wait a minute...is that Ultros? Ha!
Let's take this minute to laugh at him! You also learn here that you can bet
items for prizes, in fact there are a lot of different combinations here, and
I do mean A LOT! But for now head towards the Colleseum's battle arena and
bet the STRIKER daggar(hopefully you did not sell it!) and a battle against
Shadow will start. This battle should be pretty easy since Shadow has no
armor or weapons to defeat you with. After the battle Shadow tells the party
that the only thing he knew how to do was fight. He then decides to go with
the party, so now head back to your airship and head for the magic tower.
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