One of the keys to success in sports betting is managing your bankroll. If you are not managing your money correctly, you are likely taking on higher betting risk than you can afford. That is not good.
So, how exactly do you manage your money in an effort to win more bets? One successful bankroll management strategy, used heavily by sharp bettors, is the Kelly Criterion method.
Here is a look at what exactly the Kelly Criterion is and how it can be utilized to identify bets that offer bettors an edge.
Kelly Criterion Definition
The Kelly Criterion – also known as the Kelly strategy or Kelly bet – dates back to 1956 and J.L. Kelly a researcher at Bell Labs. Kelly’s idea was used in investment strategy and has been used by the likes of Warren Buffet.
Using the Kelly Criterion, there is a predetermined fraction of assets that one should wager. If you use the unit approach, you might wager $5 on every bet no matter the circumstances. Using the Kelly approach, your bet sizes will vary. Here’s why.
The Kelly Criterion formula is as follows:
(BP – Q)/B
B is decimal odds minus 1. P is the probability of winning and Q is the probability of not winning. We can use this formula to help determine the size of a bet.
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Kelly Criterion Example
Using a coin flip as an example, we have found that the coin turns up heads 55 percent of the time. The moneyline odds are +100, which expressed in decimal form is 2.00.
In this example then, B is equal to 1 (2-1 = 1). P is equal to 0.55 (55 percent) and Q is equal to 0.45 or 1- 0.55. When we substitute these values into the formula, we get the following:
(0.55 x 1 – 0.45) / 1 = 0.10 or 10 percent
What this tells you is that you should wager 10 percent of your bankroll on this coin flip. Note that should you win, your next wager – in terms of absolute value – will be higher. If you lose the bet, your next wager would be lower than your original bet.
Kelly Criterion Betting
The Kelly method has been used in the financial world and the sports betting world with great success. It isn’t, however, a magic solution that will grow your bankroll by leaps and bounds.
One of the big disadvantages of using the Kelly Criterion is that it requires a precise calculation as to the likelihood of an event outcome. Bettors must have correct predictions of winning and losing percentages. This can be tricky at times.
Another disadvantage of using this money management method is that it only works for a single bet. Multiple bet scenarios are not recommended.
Using the Kelly Criterion does not put a bettor on the fast track to finding that elusive pot of gold. The method works, but the sports bettor still has to be able to find value on the betting board. The Kelly Criterion method is a way for bettors to manage risk and requires discipline to see it through in the long run.
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