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Purpose and Use of Kelly Criterion Sports Betting Strategy

The following paragraphs will discuss the Kelly Criterion Sports betting strategy. It is used to create balance between reward and risk and can be applied both to investing and gambling. On that note, it is used in sports betting too. And this is what we are going to talk about in this post. This is a popular strategy that can help you minimise losses and maximise potential profits when placing your bets. It comes with a few complexities to worry about, but in general it is worth exploring. And don’t worry, we will tell you all the details you need to know about the Kelly Criterion formula like what it is and how it works. Make sure to read the whole post to find out how you can use the strategy and when, as well as if it is a good idea to use it. Let’s get to it.

How This Strategy Applies to Sports Betting

how to apply the kelly criterion sports betting strategyTo begin with, the Kelly Criterion sports betting strategy is not a strategy. It is a mathematical formula you can use to find out how much money it is best to stake on an opportunity. It helps you determine the size of the profit you can expect to generate based on your bankroll. So far, it seems like an easy and simple strategy to use. However, that is not all.

To make things work, you need to calculate the chance of a bet winning and add it to the mathematical calculations. The basic idea behind this is to make sure your overall losses are smaller and your potential overall profits are greater. To do this, you need to stake lower amounts of money when betting on outcomes that have a smaller chance of winning, and vice versa. There is no way to do that unless you calculate the expected probability of your bet winning. Of course, whatever you do, no matter how correct your calculations are, you cannot predict an outcome with an absolute certainty. There are quite a lot of factors that get in the way. And in general, it boils down to personal opinion because no math can tell how a game is going to play out. This is why you can never give a correct answer. And this is the reason why the Kelly betting strategy might fail to work. We cannot teach you how to guess the outcome of a game, but we can show you how this formula works and then you can do the rest. So here it goes.

The Formula to Use

The Kelly Criterion sports betting strategy is as follows: (bp – q) / b = f

As you can see, there are a few components. We guess they do not ring a bell, so here is what each and every letter stands for:

  • “F” – This symbol serves to show how much money from your bankroll you should use to make a given wager. This is also the solution to the formula.
  • “B” – This is classified as the multiple of the stake you make which you can return from a given wager. Generally speaking, it is calculated by subtracting one from the odds (please note that we are talking about decimal odds!) For instance, normally, if you place a bet of £10 on odds of 3.00, you will get back £30 (£20 plus your initial stake). In this case, 3 minus 1 equals 2; hence your “b” is a multiple of 2 and the amount you win equals £20.
  • “P” – This letter signifies how probable a wager is to win. It is expressed as a decimal number. For instance, if we assume that a bet has a 60% chance of winning, then it has a 0.60 probability of winning.
  • “Q” – Along with a probability of a bet winning, there also is a probability of a bet losing, and it is expressed as “q” in the Kelly betting formula. Now, if there is a 60% chance of a bet winning, then there is a 40% chance of it losing. Hence, it has a 0.40 probability of losing. The fastest way to calculate “q” is to subtract “p” from 1.

what formula to use for the kelly criterion

Now, if we use the above examples, we can show you how the Kelly Criterion sports betting strategy works. We assume that our proposed wager has a 0.60 probability of winning, 0.40 probability of losing, and odds of 3.00. Then we get the following: ((2 x 0.60) – 0.40) / 2 = 0.4

As you can see, this bet has a positive expected value, something to consider when betting at any online sportsbook.

Expected Value and Kelly Betting

We discussed expected value in the previous sections of our guide, but just in case you are not familiar with it – this is when the possibility of a bet winning is greater than the odd’s implied probability. For instance, if there are odds of 2.00, it means that they have a 0.50 implied probability. What this means is that if you place a bet on these odds, it will have a 50% chance of winning, roughly speaking. The wager is considered to have a positive expected value if you believe it has bigger chances of winning than what the numbers express.

With that said, we want to point out that the Kelly Criterion sports betting strategy can be used successfully only if your bets have a positive expected value. Since people have different opinions, it should be noted that the term expected value is very subjective. Yet, you should always place wagers with a positive expected value. This means that the odds should be high.

Using the formula we provided above, you can avoid placing wagers with small odds. If its solution is a negative number, then the expected value of the proposed wager is not positive, therefore it is not worth making that wager.

find an example for kelly criterion sports bettingLet us give you another example to see what we mean. Let’s assume you have odds of 3.00 just like in the previous example, but this time the bet has a 0.30 probability of winning and a 0.70 probability of losing. Here is how it looks like using the formula:

((2 x 0.30) – 0.70) / 2 = -0.05

Or let’s assume that you want to place a wager on a women’s tennis match. The sportsbook you want to bet at offers 2.60 odds on player A and 1.50 odds on player B. You think that player B has a 65% chance of winning, which means that the probability equals 0.65. You make up your mind to bet on her, and so you decide to use the Kelly Criterion formula to calculate the real chances. Here is the calculation:

((0.50 x 0.65) -0.35) / 0.50 = -0.05

The two examples express a negative value and show that it is not worth placing a bet on either opportunity because it has a negative expected value. On the surface of it, the second situation seems to offer a good chance of success, but once you do the calculations, you realise that it is not a wise idea to risk your money, as the odds are not high enough.

Pros and Cons of the Kelly Criterion Sports Betting Strategy

The formula we used above seems to be a great technique to help you avoid bad wagers and get the most of them. It does have a few good advantages to back that up. However, it also has its flaws. Here we give you the biggest pros and cons of the Kelly Criterion.

Benefits

what are the benefits of calculating the kelly criterionThe most obvious advantage of the Kelly Criterion sports betting strategy is that it helps you decide on the amount of stake to make. It takes time and practice to become adapted to using the formula and doing your calculations right, but it is relatively easy and straightforward. All you have to do is figure out which numbers you need, then you substitute the letters in the formula with them, and you do the math. The equations are not difficult either. You can use your phone’s calculator to get it right.

The second advantage is that this strategy can help you avoid placing bad bets where no positive expected value is present. It is easy to make a wrong assumption that when the probability of winning the proposed wager is higher than the probability of losing it, it safe to place a wager. However, when using the calculation, you can see that in some cases the Kelly betting returns a negative number, which means that the expected value is not positive. So, you cannot always tell whether a wager will be successful just by looking at the odds and probability. This is why this strategy is so popular. It gives you more clarity on the situation.

The biggest advantage of the strategy is that it enables you to apply the theoretical value of bets and manage your bankroll wisely. It helps you create a balance between protecting your bankroll and growing it, which is probably your strongest desire. The best way to maximise your profits is to bet small amounts of money when you have a low theoretical value, and vice versa. This will keep you from going bust. So, explained in other words, the formula takes into account the size of your bankroll, which many other staking plans fail to do.

Downsides

One of the disadvantages of the Kelly Criterion sports betting strategy is that it offers an aggressive amount of money you should stake for your proposed wager. Looking at the examples we used to illustrate how the formula works, you can see that the result suggests that you stake around 5-10% of your bankroll. Using such a high amount of money on every wager bears lots of risk. The truth is that most punters bet about 2% of their bankroll, and the majority of them are not inclined to set aside more than 5% of their bankroll for a single bet.

does the kelly criterion formula involve downsidesThe good news is that this issue can be easily overcome if you just reduce the amount of the stake suggested by the formula a little. For instance, you can bet half the amount. Many bettors go with the so-called fractional Kelly strategy, according to which they need to use a fraction of the stake suggested by the formula.

The biggest downside of the strategy is that it only works if you know the probabilities of the wagers. If your predictions are not correct, then the equations will not be right either. The whole concept will be worthless. It will either prevent your bankroll from growing, or it will result in a loss. The formula cannot help you find good betting opportunities.

We hope this breakdown of the Kelly Criterion sports betting strategy has helped you get the basic concept right and that you can use it to your advantage when placing your bets. It is important to keep in mind that the strategy does not offer magic solutions, as it can only help you determine the size of your optimal stakes. According to some, it is very beneficial; while others are convinced it is completely useless. Opinions appear to be split on this subject. We suggest you try the formula and see whether it works for you. It does not hurt to use it from time to time.

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Last edited by Anthony Graham at May 30th, 2017
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