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The Kelly Criterion and Bankroll Management

Choosing the size of the sports bet that you place is clearly important in managing your bankroll; you want to profit over the long term, while successfully absorbing any losses. The Kelly Criterion, also known as the Kelly Bet, Kelly Strategy or Kelly Formula, is a helpful tool when it comes to making this decision.

Described by Bell Labs researcher J.L. Kelly, Jr. in 1956, the Criterion determines the optimum bet size to grow your capital and has become an important part of investment theory. When applied to sporting events, it has been found to ensure more consistent gains than almost any other staking strategy. To learn more about the formula and how to use it, keep reading below.

Calculating the Kelly Criterion

The Kelly Formula is:

(bp – q)/b = f

Where b is the given odds on the wager, p is the probability of winning, and q is the probability of losing (determined by finding the value of 1 – p). The calculation results in f, which is the fraction of your bankroll that you should bet.

For example, if there is a 60% chance of winning (p = 0.6) and thus a 40% chance of losing (q = 0.4), along with 1:1 odds (b = 1), then f is 0.2:

(1*0.6 – 0.4)/1 = 0.2

This means that you should put 20% of your bankroll on this wager. The great thing about the Kelly Criterion is that it applies mathematical principles, but it also allows you to factor in your own judgement. Wondering how the value of p and q are determined? That’s all you.

Minding Your Ps and Qs

The odds for any wager are laid down by the bookmaker but you decide what value to assign to p (and thus to q) based on your own evaluation of the athletes’ skills, injury reports, recent past performances, expert opinions, and any other information you can find. In other words, your research can almost be scientifically applied.

Since you use your own insights to decide on p and q, Kelly Bets are not recommended for beginners. When you’re starting out and are still unfamiliar with a sport and its players, it’s best to stick to a fixed plan where you bet the same, pre-set percentage of your bankroll on each wager in the same way that you would if you were playing real money Bingo games.

Always Stay Within Your Budget

Sports betting is not an exact science. After all, if we knew the results of all events, we’d only ever place winning wagers. Remember, a lot of your calculations come down to probability theory here; the Kelly Strategy is an easy, practical application.

That means that you should expect to incur some losses; even the world’s most successful bettors do. But if you set a budget and then stick to it, without chasing your losses, over time your Kelly Bets should yield significant profits for you. Your aim here is to play the long game, and enjoy the process.

Published inGuides & Tips
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