Kelly Criterion

The Kelly Criterion is a formula developed by an American scientist named Larry Kelly Junior. While having nothing in common with sports betting, the bookmaking industry has adopted it as a strategy and money management formula. Many, even modern, betting experts strongly believe that the formula is a key to a proper betting approach and a recipe for success in sports betting. The formula helps assess the real probability of the particular outcome and choose the most optimal stake for the given bet. In other words, the Kelly formula determines what share of our budget (bankroll) can be spent at any moment of betting on a given sporting event, based on our idea of a likelihood of a certain outcome occurring. In order to use the Kelly Criterion, we should work with bets, which, according to us, have longer odds than they supposed to (meaning the chances of the team we back are being higher despite the bookmaker’s odds stating otherwise). A good solution, in this case, would be to look for the so-called value bets or bookmakers’ mistakes. However, do not forget that the size of your stake has to be proportional to the odds offered.

The frequent implementation of the Kelly Criterion approach in your betting routine shows a tendency of profit maximisation in the long run. Please, take a look at the example below.

It might look quite complicated at first, however, dedicating it a bit of time and learning its fundamentals will make it very clear for you right away.

The actual Kelly formula looks the following way:

Bet = [c x (p x o - 1)] / o - 1

C - capital;
p - the chances of winnings the bet according to the punter, expressed in percentage;
o - odds;
x - multiplier.

Betting 101. How to collect & analyse data for betting?

Example 1

Let us show you a couple of examples of how to use the Kelly Criterion. Assume the bookmaker has opened the market for the upcoming Spanish ACB basketball league matchup between Fuenlabrada and Real Madrid. The bookmaker priced the home team, which won 12 out of its last 14 matches, at 2.95 (39/20), while the away side was given the odds as short as 1.35 (7/20). Taking into consideration that it is a derby matchup, the superior shape of Real’s squad, and the fact, that Fuenlabrada plays at home, the chances of the home side clinching a win is still a bit overestimated. Thus, let’s give the home side a 40% chance to win the matchup at the odds of 2.95 (39/20). Assuming that we have a £500 budget heading into the game, our formula will be looking the following way:

Bet = [500 x (40% x 2.95 - 1)] / 2.95 - 1
Bet = [500 x (1.18 - 1)] / 1.95
Bet = [500 x 0.18] / 1.95
Bet = 90 / 1.95
Bet = ~ 46

Example 2

This example will show you how the Kelly Criterion formula applies to short odds. Using the same basketball game, let’s assume we are backing the opposite side this time. Hence, keeping all the data the same, let’s give Real Madrid an 80% chance to win the game at the odds of 1.35 (7/20). Once again, our budget is £500, and the formula is looking the following way:

Bet = [500 x (80% x 1.35 - 1)] / 1.35 - 1
Bet = [500x (1.08 - 1)] / 0.35
Bet = [500 x 0.08] / 0.35
Bet = 40 / 0.35
Bet = ~ 114

Let’s take a look at the first example where we staked £46 on Fuenlabrada’s victory at the odds of 2.95 (39/20). Making a couple of simple calculations, we end up with the following: £46 x 2.95 = £135, which means our net profit is £135 - £46 = £89.

In the case of the second example, our situation looks the following way:
£114 x 1.35 = £154
£154 - £114 = £40

As you can see in both examples, the correct assessment of the probability of the event is very important while using the Kelly Criterion. You should also pay attention to the fact that when we place smaller bets at long odds, we will get more profit rather than when we place bigger bets at a shorter price.

Sports Betting Guide - What are the chances of being a profitable punter?

1. The first thing when it comes to using the Kelly Criterion strategy is to find the event with longer odds, preferably above 1.85 (17/20). The best scenario would be to find a value bet or exploit one of the bookmaker’s mistakes.
    
2. The next step is to assess the chances of the outcome we are trying to back, occurring as accurate as possible. This is very crucial to the overall efficiency of the method.
    
3. Then, you have to calculate the most optimal stake based on your bankroll size, using the Kelly Criterion formula shown above.
    
4. Place your wager and wait for results. A good idea would be to implement the progression element, where you would increase or decrease your stake based on your results going forward.
    
5. Last but not least, never apply the Kelly Criterion to short odds wager or all-in type of wagers.

We strongly believe that the Kelly Criterion system is one of the best betting systems, which can be easily used beyond sports betting. The system is definitely intended for the punters who are looking for regular, long-term betting. What is more, you have to possess a decent start-up budget if you want to start using this betting method. There is no doubt that the system is the most suitable for rather more advanced punters who already have some experience behind them due to a large share of risk assessment involved. 

If you are familiar with betting, then you should know that evaluating the chances of a given outcome taking place is not that easy of a task, and requires substantial sporting knowledge.

Summing up, we rather suggest the Kelly Criterion to professional, or at least quite experienced, punters who already been field-tested and possess the necessary resources to fund their betting. Betting on sports using the Kelly Criterion can actually drastically minimise the risk of bankruptcy, even though, it is still possible that your bankroll will fall close to 0, especially during the losing streak.

Predictability of sports disciplines