Everyone plays Secret Santa and Jim is excited because he drew Pam's name. He bought her a teapot that she wanted and a bunch of little gifts that are all inside jokes between them. He got her a card as well, expressing how he really feels about her.
Michael announces to the office that he brought a digital camera this year for the party. He says that the craziest thing that happens will be on the cover of the company newsletter.
Michael went above and beyond and bought an iPod for Ryan, his Secret Santa. Michael received a large bonus check and decided to splurge a bit.
Everyone gets together for the Secret Santa gift exchange. Gifts are passed back and forth but Michael is pissed because he gets a hand-woven oven mitt from Phyllis. He storms out of the room.
Michael returns to the gift exchange and announces a change in the rules. The game is now "Yankee Swap" where everyone gets to pick a gift from the pile or steal a gift from someone else. Everyone is kind of put off by it.
Michael gets rid of the mitt and ends up getting a bag of paintballs and two paintball lessons with Dwight. Phyllis leaves upset. The group tells Michael it was wrong to change the game. Everyone leaves pissed.
Jim is upset because Pam ends up with the iPod and Dwight gets the teapot. He asks Dwight if he can buy it from him, but Dwight refuses.
To salvage the party, Michael buys 15 bottles of vodka and throws a rager in the office. He takes photos of everyone doing shots, dancing, passing out, etc.
Pam decides to trade the iPod for the teapot. She finds all the little bonus gifts inside and is thrilled. She says she made the right choice. But Jim steals the card back before she can read it.
The party ends and everyone leaves. Meredith comes into Michael's office and strips naked - he takes a picture and walks out.