Kelly Criterion

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In this article we’re going to look at a staking system that a lot of successful gamblers use called the ‘Kelly Criterion’. As we’ve already stated before in other articles one of the most important aspects of winning sports betting is bankroll management and by using the Kelly method you can optimize your rate of bankroll growth.

 

The Kelly Criterion was originally written by John Kelly in 1956 for information rates and was published in the Bell System Technical Journal. The formulas have been simplified so the criteria can be adapted to betting on sports.

 

The Kelly criterion assumes you know the probability of the result of an event. What’s the true probability you ask? Well whenever you place a bet on a team, you are betting because you believe that they have a greater chance to win than what the odds suggest, as you’re looking for value in the odds. Take for example, a match in which both sides are priced at 1.90, and you decide to bet on the team that are playing at home.

 

1.90 represents a probability of (1 / 1.90) = 52.6% but because we are betting we must think that the probability of our side winning is greater than the odds offered. Maybe we think our side has a 60% chance of winning. This is our perceived probability of winning.

 

The Kelly criteria works off a moving bank, so this means that the more money you have the more money you bet. It also suggests betting more the greater the difference our perceived probability of winning is to the odds offered by the bookmaker.

 

So the Kelly formula for the correct amount to bet looks something like this:

 

So let’s say we have a bank of £1,000 and we want to bet on a team where the odds are 1.90 but we think the probability of them winning is 60%.

 

 

The Kelly formula tells us we should bet 15.5% of our bank which equates to £155.55 however this is quite a large percentage of our bank which is why most sports bettors use ‘half kelly’ rounded to an even number.

 

In the above example 155.55 / 2 = 77.77 so therefore we would bet £78. So by using the Kelly betting system we can stake the correct amount to take advantage of our edge and maximise profits and bankroll growth.