Kelly Criterion basics

If you are good at weighing and comparing the value of your bets the Kelly Criterion betting system might be for you. The system was invented by a bright American fellow named John L. Kelly, and it aims to perfectly size your bets based on the value offered. Read on, and discover what the Kelly Criterion betting system is all about.

What is the Kelly Criterion?

The Kelly Criterion is a money management focused betting system. In turn, money management is all about optimizing the potential for winning at the expense of excess risk. In essence the Kelly Criterion aims to find the optimal amount of your bankroll to wager on a bet.

Basic Kelly Criterion formula

BR% = (P*B) – 1 / odds – 1, where we let P be the probability of us winning (in decimal format), B the odds offered and BR% is the percent of the bankroll we should stake according to the Kelly Criterion.

Application

After applying this formula to your data you get a positive number for BR% that shows you how much of your bankroll to wager. If the number is negative, it simply means: No bet.

Kelly Criterion Premier League betting example

Say you are offered odds of 1.91 or in fractional odds of 10/11 that Arsenal will beat a reduced Tottenham side at home. You are a betting expert having used your bet analysis tools to their fullest extent and your computations say 55% chance of winning, totally accurate. If you plug and chug those numbers into the formula above you get BR% = (0.55*1.91) - 1 / (1.91 – 1). In turn, the Kelly Criterion then instructs us to bet 5.5495% of our bankroll.

Kelly Criterion problems

From what is written so far you should be able to see that the clue for getting this one right is estimating the exact probability for the outcome you want to bet on. We will use the example above to illustrate: If the 55% estimate we reached was slightly off, and the real probability for an Arsenal win was 52% (about 5.5% off the 55% first target) then the Kelly Criterion would tell us to skip the bet.

So, how easy is it to analyze sports events? First, analyzing events that take place in sports is not a static exercise. It is highly dynamic. New factors bombard us from all angles at all times. To get to a spot-on perfect valuation is an immense task, and most humans have enough problems finding the said value.  Many solve this by betting ½ Kelly, ¼ Kelly and so on and so forth. This obviously takes down the volatility. However, you still got to be right in your value estimation.

Kelly Criterion betting application

If you are able to break down sports to their bare bones and far beyond, then the Kelly Criterion should in theory be possible to use for success. That is no simple task as you will obviously need a solid grasp of statistics and probability. You will need lots of information on the sports you choose to bet on. You also need to have a thorough understanding of those sports, their participants, the psychology aspects and much more. Furthermore, you need to be able to quantify this data in a way that tie together the information neatly. All this is information we cover in various articles. Enjoy them and try to see the big picture.

Kelly Criterion conclusion

If you are extremely precise in sports handicapping, feel free to use the Kelly Criterion all you want. If you are like most folks flat betting is probably the easiest and most convenient way to go.