The Kelly Criterion is a strategy that can be applied to sports betting. The betting strategy is all about creating a steady balance between risk and reward and maximising the potential returns. The Kelly Criterion was developed in 1956 by John L. Kelly and has long been established as a sports betting strategy in its own right, despite its application to other forms of risk and reward.

Kelly’s theory is to grow your bankroll over the long term by determining the optimal wager amount for the bet. This theory uses percentage-estimations which go up against the bookmaker’s percentage-estimations. The strategy isn’t full proof (like all betting strategies), but it’s still very popular amongst sport bettors with many professional gamblers putting it into play and standing by it. The strategy isn’t about swaying odds in your favour, beating the bookies or guaranteeing profits, but it’s about being intelligent in how much you wager on a certain bet and help build a steady bankroll.

How to apply the Kelly Criterion in sports betting

First, let’s take a look at the Kelly Criterion formula:

 

(bp-q)/b

B = the Decimal odds -1

P = the probability of success

Q = the probability of failure (i.e. 1-p)

 

Any time a bet is places, the punter should be looking for that edge and not be placing a bet with their gut instinct. Utilising the Kelly Criterion will help determine how much should be staked per bet. Let’s take away the complex formulas and use a coin flip to break down the maths of the Kelly Criterion strategy.

 

For arguments sake, the coin has a 52% chance of landing on heads.

Coin to land on heads at odds of 2.00

 

In this case: 

B= 0.52

P = 1-0.52 = 0.48

Q = 2-1 = 1.

 

Result: (0.52×1 – 0.48) / 1 = 0.04

 

The Kelly Criterion suggests that the optimum amount to wager on this bet would be 4%. In this case, the positive percentage means the edge should (in theory) be in favour of the bettor. Any negative percentage would suggest that the bettor should not place a bet on the outcome. And that is how the Kelly Criterion works. It requires precise calculations and discipline; this strategy is not a get rich quick scheme and would take a time to build up the bankroll.

The Kelly Criterion in sports

Let’s take a tennis match for example, Andy Murray vs Novak Djokovic and Novak Djokovic has a 65% chance (0.65 probability) of winning and you decide he’s worth the bet (using your own knowledge of the sport event) and put the Kelly Criterion into action.

 

You’d make the calculation: ( (0.50 x 0.65) – 0.35 ) / 0.50 = -0.05

 

This formula has returned a negative value and therefore the bettor would not risk money on this bet. Djokovic may have a good chance of winning but there is no positive expected value to justify the risk. It’s calculations like this in sports betting that make the Kelly Criterion so popular. It finds the value in wagers.

Drawbacks with the Kelly Criterion

This long-established strategy is arguably only valid when the game is played many times over with the pay-out ratio the same for both teams, but this never happens in sport events (obviously). For the Kelly Criterion to work successfully, the bettor must have a positive edge, an opportunity of value. If the edge is zero or negative then the bet is deemed a no-go.

Another flaw of the Kelly Criterion is that the strategy relies on the bettor knowing the true probability of the sport event. This means if Team A and Team B are playing against each other in a football match, the bettor needs to pick the team that’s worth the bet, usually the favourite. It really comes down to the personal opinion of the bettor and their knowledge of the sport. This obviously gets more difficult in different sports, such as horse racing or golf. If the bettor is unable to determine the probabilities, then this will cause the punters bankroll to take a hit, especially if the bettor is overestimating the likelihood of a team or a player winning a particular event.

What’s more, another setback is that the percentage result from the theory often requires a large bankroll to make a success of it. Most professional gamblers would not stake high percentages on one particular sports bet and the Kelly theory will often display high stake percentages (often over 10%).

Advantages of the Kelly Criterion

This intelligent strategy has its advantages, there are plenty of factors that make this theory so popular amongst sport gamblers. One being, that it’s very straightforward to work out how much the wager amount should be. This strategy takes your bankroll into consideration and manages it to a certain degree. It also prevents punters from placing money where positive expected value is non-existent.

The Kelly Criterion doesn’t improve your winning chances, just like every other betting strategy but it does encourage a staking plan and it puts good bankroll management into play. It gets the bettor to think about staking more when the theoretical value is high and risk less when the theoretical value is low. This should build up profits in the long term and cut down the risk of busting the bankroll.

The Kelly Criterion promotes cautious betting

Most gamblers will overestimate their odds of winning and as a result, place a larger wager. With the outcome of any sports event being imprecise, the Kelly Criterion formula can mean extreme volatility and that’s why bettors should think about under betting to keep a steady bankroll and building it.

The Kelly Criterion theory is just like a progressive betting system where the higher the bettor’s probability of winning, the more the bettor wagers. The less probability of the winning, the less the bettor stakes. It still requires a lot of the bettor, they need to know what they are staking their money on, in other words, they need to be a smart bettor before they even use the Kelly Criterion formula.