The Kelly Criterion Formula and Betting Strategy Explained

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Put the Kelly Criterion Formula into action!

Looking to be more strategic with your sports bets? Try your hand at the Kelly Criterion formula for the chance to boost your bankroll.

The Kelly Criterion is based on solid mathematics and has a lot to recommend it. For those adept at calculating true probabilities, it offers a dynamic way of maximising their rewards. It is important to remember, however, that the Kelly Criterion is essentially a staking system. It will not identify potential bets and is not an automatic route to profit. It should therefore be used with caution, particularly by those new to betting.

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What is the Kelly Criterion?

The Kelly Criterion is a relatively simple mathematical formula that can be used to work out the ideal level of stake to be used for any particular bet by working out the expected level of return from the bet, and applying this to the bettor’s betting bank.

Why is the Kelly Criterion formula used in sports betting?

How to Bet Using the Kelly Criterion Formula

In short, the Kelly Criterion is a mathematical formula that will help you calculate how much money you should risk on a bet. It was developed by Texan-born computer scientist John L. Kelly and has since become popular among bettors and stock market investors who are looking to gain an edge.  Here’s how it works.

The formula – (BP – Q) / B = F

B – the decimal odds -1

P – the probability of success

Q – the probability of losing, which is 1 – P

F – fraction of bankroll to bet

This might seem confusing, especially if maths isn’t your forte, but it’s really quite simple. Here’s an example, which should make it a little easier to understand.

Let’s take a coin. The odds of the coin landing on tails is 2.00. The coin however is slightly biased, so it has a 52% chance of actually landing on tails.

B = 2 – 1 = 1
P = 0.52
Q = 1 – 0.52 = 0.48

This works out at: (1 x 0.52 – 0.48) / 1 = 0.04

This means that the Kelly Criterion formula would suggest betting 4% of your betting balance.

It’s also worth noting if the result of the formula shows zero or a negative number that you shouldn’t place the bet. A positive percentage shows an edge in favour.

Still not sure how it works? Take a look at our in-depth blog article on strategies.

kelly criterion equation

The importance of value

An important aspect of the Kelly Criterion is that it can also tell you when a bet offers value. Broadly speaking, you have found a value bet when the probability of its being successful is higher than the implied probability of the odds for that bet.

For example, if the decimal odds of a bet are 4.0, then the implied probability of that bet is 25% or 0.25. If you think that the likelihood of the bet being successful is greater than 25%, then you have identified a bet with a positive expected value.

In the example above, the answer to the Kelly Criterion formula is a positive number. This tells you that you have identified a bet with value. If the answer to the equation had been a negative number, this indicates negative value. So, the Kelly Criterion is effectively telling you that you shouldn’t bet.

Kelly Criterion probability in sports betting

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Advantages of betting with the Kelly Criterion

The advantages of betting using the Kelly Criterion are clear to see. It can reduce the risk of losing bets and could boost your betting balance if used in the correct way.

The system also helps you to spot bets that don’t offer value. When the formula throws up an answer with a negative number, you have a useful warning not to bet.

Not only that, but it also can ensure that you don’t stake too much on a bet where the probability of success is low.

If you’re a strategic bettor and a critical thinker, this might be good for you.

kelly criterion advantages

Disadvantages of betting with the Kelly Criterion

In terms of winning bets and reducing your chances of losing, it could give you an edge in the long run. However, as we all know, in sport, anything can happen.

Let’s use Leicester City’s 2015/16 Premier League title triumph as an example. The formula wouldn’t have advised to bet on this. But they ended up winning the league at odds of 5,000/1.

So, if you’re someone who likes to bet based on instinct or to ‘go with your gut’ this won’t be for you.

It’s important to note that the Kelly Criterion isn’t a guaranteed method to make money and win bets, however, it has become one of the world’s most well-known betting strategies. If your estimates are inaccurate, then using the formula will lead to incorrect stake size recommendations and an inefficient use of your betting bank.

It’s simply another tool available to help you make an informed decision and gamble responsibly.

 

kelly criterion disadvantages

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