Kelly Criterion in Sports Betting
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Managing your bankroll properly is essential for your success in gambling. Many profitable players use the Kelly Criterion for sports betting purposes, and it’s one of the best ways to determine the size of your wagers.
The simple explanation is that the formula works because it focuses on both the chance of success and your potential profit. The higher each of these is, the larger your bet should be.
I explain how the Kelly Criterion formula works for sports betting in more detail below. I’ve also added info on variations such as half-Kelly and double Kelly, as well as an overview of the pros and cons of the system.
What Is the Kelly Criterion?
The Kelly Criterion was developed by mathematician John L. Kelly Jr. in 1956. The American scientist was working for AT&T’s Bell Laboratories when he invented the formula.
It’s designed to maximize wealth growth and control risks by picking the optimal size of your bankroll you want to invest in a selected opportunity.
There are conflicting stories about the initial goal of the system, but the gambling community saw the Kelly Criterion as a useful instrument almost instantly. Here’s what the formula looks like.
K% = (b*p – q)/b
That probably means nothing for most people, so let me explain what each element represents.
- K% – The percentage of your bankroll that you need to place based on the formula.
- b – The multiple of your initial stake that you can win from the opportunity. When using decimal odds in sports betting, b always equals the price you get -1.
- p – The probability of success presented in a decimal number. For example, 40% would result in a p of 0.4.
- q – The probability of failure presented in a decimal number.
If you still have problems understanding the formula, don’t worry. I provide a simple example for using the Kelly Criterion in sports gambling in the next section.
Using the Kelly Criterion for Sports Betting
The experienced gamblers among you probably see the benefits of the Kelly Criterion in sports betting already. The formula is based on the most important factor you need to consider when placing your wagers: the risk-reward ratio.
Here’s a practical example of what a simple calculation with the Kelly Criterion would look like in betting. Imagine that you see the price of 2.00 for over 2.5 goals in a selected soccer game. Simple gambling math shows that’s equal to a 50% chance of success.
According to your own calculations, the actual probability is 60% which means this is an excellent bet. Your bankroll is $1,000, and you wonder how much you should risk. Here’s what the variables in the Kelly Criterion formula look like based on these conditions.
- B = 1 (decimal odds of 2.00 – 1)
- p = 0.6 (60% chance of success).
- q = 0.4 (40% chance of failure).
If we replace them in the formula, here’s what you get.
K% = (1*0.6 – 0.4)/1 or K%=0.2.
You should place 20% of your bankroll of $1,000 or $200 for optimal long-term gains according to the Kelly Criterion.
The more experienced bettors among you are probably surprised by how high the number is, but the reason is simple. According to your calculations, this is an excellent wager because you have a relatively high probability of success (60%) and a great expected return of investment (20%).
And yet, 20% of your bankroll is a lot which leads me to the pros and cons of using the Kelly Criterion for sports betting.
Pros and Cons of Using the Kelly Criterion for Gambling
The Kelly Criterion is neither good nor bad. It’s just an instrument that can help you optimize your approach to sports betting if you know how to use it right. At the same time, it can be dangerous in certain situations.
It’s time to explore the good and the bad that comes with this approach. Let’s begin with the positives of the Kelly Criterion in betting.
Advantages of Kelly Criterion Betting
One of the main advantages of the Kelly Criterion is the simplicity behind it. The formula might look complicated at first, but using it a few times is more than enough to get used to it.
The system is also flexible because it works for all bankroll sizes (within reasonable limits) and odds. Both high rollers and recreational players can use the Kelly Criterion for sports betting without much of a hassle.
The other huge advantage is that the Kelly Criterion is based on value betting and risk management. The formula encourages you to invest more when the conditions are favorable to you. The Kelly Criterion also suggests you shouldn’t gamble unless you have the upper hand, which is the main concept behind value betting!
It sounds excellent on paper, but there are some flaws that I feel obliged to address.
Cons of Kelly Criterion Sports Betting
The biggest issue with the Kelly Criterion is that the formula relies on the gambler to fill in the missing variables. The odds are obviously provided by the sportsbook, so that’s easy. That’s not the case with p and q that represent your probabilities of success and failure.
If your numbers are wrong, the formula will return a sub-optimal result too. Let’s face it, getting the probabilities right is the biggest challenge of sports gambling. In fact, many people don’t even understand the concept of value betting.
The Kelly Criterion can help you maximize your profits if you are profitable in the first place. It can’t turn a serial loser into a winner.
The other issue with sports betting with the Kelly Criterion is the relatively aggressive nature of the formula. If the conditions are very favorable for you, it encourages large wagers. That could be risky to your bankroll, not to mention that most people can’t handle big losses.
The Kelly Criterion doesn’t factor in human nature, and we all know that plays a role. Losing control after taking a big hit is among the leading reasons for people going broke in gambling. A more conservative approach should be adopted in most cases which leads me to the next section.
Variations of the Kelly Criterion
The principles behind the Kelly Criterion are spot on. It would be foolish to completely ignore the formula because of its flaws. What you can do instead is apply the half-Kelly Criterion approach which is way more conservative.
As the name suggests, simply place half of what the Kelly Criterion recommends.
If you’re supposed to bet 10% of your bankroll, just place 5%. You can even divide by 3 or 4 for an even more cautious approach to bankroll management. That’s what pro bettors should do for optimal results.
If you’re a casual gambler that can easily afford to lose everything and reload, you can be more adventurous instead. Some people go for the double Kelly Criterion, which means placing twice what the formula recommends.
The important factor here is to carefully figure out what your goals are and how much you can afford to lose. Be sensible to get the most of the Kelly Criterion when you bet.
More on Bankroll Management
You probably found my guide to Kelly Criterion sports betting because you need help with bankroll management. It’s critical to establish some ground rules for that aspect of gambling.
I can recommend visiting the following two pages for even more information on the topic.