Last Updated 9/11/08
The following statements are generalities, not actual laws for every jurisdiction. There is no federal law governing slot machines, so these classifications may vary from state to state.
Some states have restrictions on the type (called "class") of slot machines that can be used in a casino or other gaming area. "Class III" (or "traditional") slot machines operate independently from a centralized computer system and a player's chance of winning any payout is the same with every play. Class III slots are most often seen in Nevada or Atlantic City and are sometimes referred to as "Vegas-style slots".
"Class II" slot machines (also known as "video lottery terminals" or "VLTs") are connected to a centralized computer system that determines the outcome of each wager. In this way, Class II slot machines mimic scratch-off lottery tickets in that each machine has an equal chance of winning a series of limited prizes. Either class of slot machines may or may not have a player skill element.
In general a game must have all characteristics of a Class II game to be a Class II game. Any characteristic of a Class III game makes it a Class III game. The casino pays a fee to the state for each Class III game and can only purchase so many Class III licenses. There is no such restriction for Class II games. Class II games are not so tightly regulated by the state.
Class II game characteristics
The player is playing against other players and competing for a common prize.
There is necessarily a winner in each game. The game continues until there is a winner.
In a given set there are a certain number of wins and losses. Once a certain combination has occurred it cannot occur again until a new batch is initiated. This is most obvious in scratch-card games using cards that come in packs. Once a card has been pulled from a pack, the combinations on that card cannot occur again until a new pack of cards is installed. One game is dependent on previous games.
The player must be an active participant. They must recognize events as they occur and must recognize when they have won and announce their winning. Bingo is an excellent example here.
All players play from the same set of numbers as the numbers are announced.
Class III game characteristics
The player is playing against the house.
Each game is independent of previous games. Any possible outcome can occur in any game.
Wins are announced automatically.
Many American casinos offer free memberships in "slot clubs", which return a small fraction of the amount of money that is bet in the form of comps (complimentary food, drinks, hotel rooms, or merchandise), or sometimes as cash or a promise to pay cash at a later date. These clubs require that players use cards that are inserted into the slot machines, to allow the casinos to track the players' "action" (how much each player bets and for how long), which is often used to establish levels of play that may make players eligible for additional comps. Comps or "cash back" from these clubs can make significant differences in the maximum theoretical returns when playing over long periods.