Kelly Criterion Betting Formula Guide for Sports Bettors

In this guide, we explain how you can use the Kelly Criterion Betting Formula to enhance your betting efficiency.

Introduction of Kelly Criterion Betting Formula

Before we get into the explanation of this formula, it’s important to understand its origins. The Kelly Criterion Formula was invented by John L.Kelly, an American computer scientist. He presented this formula in his 1956 paper – ‘A New Interpretation of Information Route’.

Although this formula wasn’t used by Kelly to make money, it has grown to become a popular plan for reversed staking in the betting and stock market community. In fact, famous investor and billionaire, Warren Buffet, is also an advocate of this method.

Most bettors have trouble deciding how much of their bankroll they should stake in each bet. Staking too much will affect their long-term profitability as much as staking too little will. Kelly Criterion Formula is a method they can use to determine the optimal amount when they have to bet on an opportunity.

The Kelly Criterion takes into account the total amount of money available for betting and the expected returns from the bet. With this Formula, you can calculate the right amount you can ‘risk’ with a bet relative to your betting bankroll size.

The Kelly Criterion Betting Formula might seem simple on the surface, but there’s a lot more that goes into it. For effective use of this formula, you need to take the expected chance of winning into consideration. The purpose of the Kelly Criterion is to ensure that you stake –

·      Larger amounts when there’s a higher chance of winning

·      Smaller amounts when there’s a lesser chance of winning.

Using this method, the overall returns from the bet will be higher, and your losses will be lower too. However, with sports betting, the exact probability of winning is uncertain and based on a host of factors.

Getting a correct and definitive answer is quite difficult, so it all ultimately comes down to personal opinion. However, there’s no doubt that the Kelly Criterion Formula can help you in getting quite close.

What is the Kelly Criterion formula

Now, we come to the main part – the Kelly Criterion Formula.

The Kelly Criterion formula is: (BP - Q) / B=f

This math equation is used to determine what percentage of the bankroll should be used to place a bet. It tells you how much you should wager on each hand so that you can keep playing. John Kelly had initially planned to use the formula to analyze long-distance telephone equations, however, he soon realized that it could be applied to wealth creation too.

The ultimate goal of this method is to prevent you from going bankrupt. It’s based on a simple concept – don’t bet in a way that you end up losing the whole kitty in one fell swoop. The formula can be used in situations where the punter has an advantage.

Here is a simple break down of the formula (BP - Q) / B=f

·      F – This refers to the Fraction of the total bankroll you’re planning to use for the bet

·      B – This refers to (decimal odds - 1)

·      P – This refers to the probability of winning

·      Q – This refers to the probability of losing (1-P)

An example would help you understand this better. Whenever you play dice, the chances of it landing on 1, 2, or 3 is 50%, and it’s the same with 4, 5, and 6. Let’s assume that the probability of the same dice displaying 1, 2, and 3 grows to 60%. This would mean that –

·      B would be 1 (2-1)

·      P would be 0.60

·      Q would be 0.40 (1 – 0.60)

The calculation would be: (1 x 0.60 – 0.40) / 1 = 0.2

The formula is therefore suggesting you to stake 20 per cent of your bankroll in bets. Now, if the dice bias was around 53%, the Kelly Criterion method would recommend you to stake 6 per cent of your bankroll.

If you bet a little too high repeatedly (more than 20%) on a low number, there are chances that you’ll run out of money. However, if you bet less than 20%, you will be able to see a moderate amount of profit.

The simple concept of the Kelly Criterion Betting Formula is as follows-

·      As your wealth increases from the profits, the proportion of betting will remain the same while your bet amount grows.

·      When you lose some hands, your wealth will decreases, which means that your bet amount will also decrease.

The biggest benefit of using only a portion of your wealth for betting is that it guarantees that you’ll never go completely broke at any time.

Advantages of the Kelly Criterion formula

It’s clear why the Kelly Criterion Betting Formula is so popular in the world of betting and trading. It makes sense to take your bankroll into consideration when staking higher amounts in your bets. The Kelly Criterion method is an excellent way to ensure good value bets.

If you are still not convinced about the positives of this betting strategy, here are some of the major advantages of using the Kelly Criterion for betting -

Straightforward Strategy

One of the biggest benefits of using the Kelly Criterion System for betting is that it is a relatively simple and straightforward strategy. Although you would have to learn how to calculate the size of stakes, it’s not all that difficult once you have the hang of it. All you need to do is put the relevant figures in the mathematical equation to gain some idea about your stake amount.

Takes your bankroll size into consideration

Another advantage of using the Kelly Criterion Betting Formula is that it takes your bankroll into consideration when determining the stake amount. Every staking plan you choose to go with is based primarily on the amount of money you have in your bank account.

In doing so, this method applies the fundamental principle of bankroll management. What sets the Kelly Criterion apart is that it applies the theoretical value of bets, which is something most other staking plans don’t do.

This is widely considered to be the biggest reason why the Kelly Criterion System enjoys such popularity in the betting community. It provides the bettors with the right balance between protecting their bankroll and growing it. The Kelly Criterion Betting Formula maximises your chances of gaining long-term profits while preventing you from going broke.

Enables you to place wager only where positive expectation value exists

A major benefit of the Kelly Criterion is that it prevents punters from placing bets where there is no positive expected value. Most gamblers struggle to find out what makes a bet a bad decision. This is especially the case when there is a greater probability of winning.

When there is no positive expectation value, the Kelly Criterion Formula will return a negative. This will serve as a warning to the punters to avoid any such wagers.

Disadvantages of the Kelly Criterion formula

While the strategy has some great advantages, it does come with certain downsides. Here are the main ones –

Only works if you've worked out the probabilities of any wager

This is one of the biggest disadvantages of using the Kelly Criterion Method for betting. The fact is that this betting system is only useful when you have worked out the chances of winning a bet accurately. If you’re not able to do this part well, the whole concept of the Kelly Criterion breaks down.

Wrong calculations mean that you will end up wagering the wrong amount, as a result of which you’ll end up emptying your bankroll quickly. Conversely, you might also end up preventing your growth.

Aggressive

Many punters consider this strategy to be overtly aggressive. In the example we stated in the last section, the Kelly Criterion recommended staking 20% of the bankroll. To risk such a high amount in any circumstances would not be the wisest thing to do. Most punters refrain from committing more than 5% of their bankroll on a single bet. In fact, they usually like to stay below 2%.

There is a way to overcome this disadvantage, however. All you have to do is take a cautious approach while betting. Always reduce the stake amount below the recommendation from the formula.

Some bettors also use something known as the fractional Kelly strategy. In this, they bet a fixed part (fraction) of the recommended stake. Although this fraction can be anything, usually it’s half (50%) of the original recommendation.

Kelly Criterion FAQs:

Do bookmakers allow the Kelly Criterion formula?

Yes. Most bookmakers allow punters to use the Kelly Criterion Betting Formula as a betting strategy to maximize gains and limit losses.

Who was John Kelly?

John L.Kelly was a Texas-based American scientist who created the Kelly Criterion Betting Formula. He worked at AT&T’s Bell Laboratories and had initially created the formula to analyze information transmitted over networks.

Does the Kelly Criterion formula work with football bets?

Yes. The Kelly Criterion formula can be used for all forms of sports betting, including football bets. In fact, it is one of the most popular methods for betting on football since it provides higher profits when compared to other betting strategies.