How Using the Kelly Criterion Can Boost Your Bankroll

BY markoh August 9, 2023

In the ever-evolving world of sports betting, the key to success lies in understanding the strategies that can give you an edge over bookmakers. Among these strategies is the Kelly Criterion, a formula sharp sports bettor uses to identify value bets and manage their bankroll effectively. 

This article will discuss the Kelly Criterion, explain how it works, and emphasize the importance of bankroll management in sports betting.

Bankroll Management

The Foundation of Success Before delving into the Kelly Criterion, it’s crucial to understand the significance of bankroll management. This approach involves setting aside a specific amount of money for betting, keeping track of your bets, and using unit betting instead of dollar amounts. By dividing your bankroll into units, such as $5 each, you can better gauge how much to wager on each bet based on the size of your bankroll.

The Kelly Criterion

An Edge-Identifying Formula Developed by John Kelly Jr. in the 1950s, the Kelly Criterion has become a favored tool among successful bettors. When combined with sports analytics and modeling tools, this formula helps identify value bets on the odds board and guides you in determining the appropriate wager size.

Understanding the Kelly Criterion Formula

The Kelly Criterion formula can be expressed as follows:

  • f* = (P * B – Q) / B

Where: 

  • f* = Fraction of the bankroll to be wagered 
  • P = Probability of winning 
  • Q = Probability of losing (1 – P) 
  • B = Decimal odds – 1 (if expressed in moneyline odds, B = (decimal odds/100) – 1)

Applying the Kelly Criterion

Let’s illustrate the formula with a simple example. Suppose you can bet on a coin toss with decimal odds of 2.00 (or +100 in moneyline odds). Based on your analysis, you estimate the probability of the coin landing heads at 55%.

  • P = 0.55 
  • Q = 1 – 0.55 = 0.45 
  • B = 2 – 1 = 1

Using the Kelly Criterion formula

  • f* = (0.55 * 1 – 0.45) / 1 ≈ 0.10

This result indicates that you should wager 10% of your bankroll (10 units) on this coin toss.

Pitfalls and Limitations

While the Kelly Criterion is a valuable tool, it has its limitations. In some cases, the formula may recommend wagering excessive units on specific bets, which can be risky. The formula’s effectiveness also depends on finding value bets in the odds board. Using the Kelly Criterion as part of a comprehensive bankroll management strategy rather than a standalone method for betting success is essential.

The Kelly Criterion is a powerful formula tool for sports bettors to identify value bets and manage their bankroll effectively. By incorporating this formula into your betting strategy and following sound bankroll management principles, you can help your chances of winning and success in sports betting. However, it’s crucial to remember that sports betting is not a get-rich-quick scheme, and prudent decision-making, research, and discipline are vital for a profitable betting experience.

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