Victor Arum is a seasoned sports betting writer who currently contributes to SportsTalkPhilly. He creates insightful guides and how-tos to help sports bettors formulate winning strategies and make informed wagers. Victor also reviews and rates sportsbooks, deeming them a SMASH or PASS. When not analysing sports betting patterns or writing, he's probably stretching at the gym or (re)watching a sitcom
All posts by Victor ArumThe Kelly Criterion in sports betting is a valuable formula for determining how much money to wager on a game or event to get the most bang for your buck. It’s a method used in gambling and investments to boost profits and reduce losses.
Read on to learn how to use the Kelly Criterion to increase your gambling profits. We’ll discuss what the strategy means, how it works, its pros and cons, and why it may be the right system for you. We’ll also provide examples to demonstrate how to use the formula in real-world situations.
What is Kelly Criterion Gambling?
The Kelly Criterion is a formula used to determine the best amount to wager or invest based on the odds and chances of winning. It was created in 1956 by John Larry Kelly Jr., a researcher at Bell Labs. Although Kelly initially developed it to improve telecommunications, the formula quickly became popular in gambling and investing, where people use it to increase their long-term profits.
The main idea of the Kelly Criterion is to help you grow your money as much as possible over time. It calculates how much to bet to strike a balance between potential profit and the risk of losing money. If you bet too little, your money won’t snowball. On the other hand, if you bet too much, you may lose it all. It’s essential to find the exact amount of money to maximize profit.
In sports betting, the Kelly Criterion is useful for deciding how much to bet on a game. If you’re confident about the true chances of a team winning, you can use the formula to wager the right amount. You don’t want to bet too small or too much. For example, if you think a team has a 60% chance of winning and the odds are even. The Kelly Criterion would suggest betting 20% of your money on that team. This way, you capitalize on your knowledge without putting all your funds on the line.
What makes the Kelly Criterion so powerful is its use of probability, which is your best guess at the likelihood of something happening. The better you estimate these probabilities, the more the formula will help you make money in the long run. That said, being careful is crucial. If your estimates of winning chances are wrong, you may end up wagering too much or too little, possibly hurting your results. So, while the Kelly Criterion is a powerful tool, it works best when you understand probability and risks properly.
What is the Kelly Criterion Formula?
With the Kelly Criterion, you can quickly figure out how much to bet to boost your bankroll with time. The formula is given by:
f = (bp – q) / b
Where:
- f is the bet size, expressed as a percentage of your bankroll. It tells you how much of your bankroll you should bet.
- b is the bet’s decimal odds minus 1. (e.g., if the odds are 3.0, then b = 3.0 – 1 = 2.
- p is the probability of winning the wager. For instance, if you think you have a 45% chance of winning, then p = 0.45.
- q is the probability of losing the bet, which is simply 1 – p. So if p = 1 – 0.45 = 0.55.
How Does The Kelly Criterion Gambling Work?
Although the Kelly Criterion can be tricky to adopt, it becomes relatively easy to use once you understand its workings.
The criterion uses a formula to determine the percentage of your bankroll to wager. This percentage depends on the odds of the bet and how likely you think you are to win.
By following this formula, you bet more when the odds are in your favor and less when they aren’t. This helps boost your profits while cutting down losses.
Examples Of Kelly Criterion Gambling
To better understand how Kelly Criterion sports betting works, here are two examples of how the formula can be used at online sportsbooks to determine the best bet size.
Betting on an NFL Game
You’re wagering on a football game where the odds for your team to win is 2.5 (+150), but you believe there’s a 60% chance of winning.
Using the Kelly Criterion formula when NFL betting;
- b = 2.5 – 1 = 1.5
- p = 0.60
- q = 1 – 0.60 = 0.40
- f = (1.5 X 0.60 – 0.40) / 1.5 = 0.33
According to the Kelly Criterion, you should bet 33% of your bankroll on this game. Since you feel that the odds are in your favor, the formula suggests a larger wager.
Betting on a Horse Race
A second scenario is that you’re betting on horse racing with odds of 4.0 (+300) for your favored horse, and you think the horse has a 30% chance of winning.
With the Kelly Criterion sports betting formula,
- b = 4.0 – 1 = 3.0
- p = 0.30
- q = 1 – 0.30 = 0.70
- f = (3.0 X 0.3 – 0.70) / 3.0 = 0.067
In this case, the Kelly Criterion recommends betting only 6.7% of your bankroll on this horse race. Because your perceived probability of winning is lower, the formula suggests a smaller bet to manage your risk.
The Kelly Criterion Gambling Formula Modified (Quarter & Half Systems)
While the Kelly Criterion is great for increasing profits, some people find it too risky, especially when new to the strategy. To make it safer, you can modify the formula by reducing the bet size, using what’s called the Half Kelly or Quarter Kelly systems.
Half Kelly Criterion
This system reduces the recommended bet size from the Kelly formula in half. So, rather than betting the entire amount the formula suggests, you only bet 50% of it.
Once you’ve calculated the Kelly bet size (f), divide it by 2. This reduces your risk and makes your wagering approach less aggressive. For example, if the Kelly Criterion says to bet 20% of your bankroll, the Half Kelly would recommend betting 10% instead.
Quarter Kelly Criterion
You can play even safer with the Quarter Kelly criterion. The system goes further by reducing the Kelly bet size to a quarter. This means you only bet 20% of what the Kelly Criterion suggests.
After getting the Kelly bet size (f), divide it by 4. For example, if the Kelly Criterion says you should bet 20% of your bankroll, the Quarter system recommends just 5%.
Pros and Cons of Kelly Criterion Gambling System
The Kelly Criterion is popular among casino gamers and sports bettors because it can enhance one’s winnings, among other perks. That said, the system also has its drawbacks. We take a look at the pros and cons of the Kelly Criterion formula below.
Pros- Increases long-term profit: The Kelly Criterion helps you grow your profits over time by providing you with the best bet sizes.
- Based on logic: The system relies on maths, meaning it’s more reliable and less emotional than just guessing and following hunches.
- Balances risk and profit: It helps you bet more when the odds are favorable and less when they’re not, reducing the risk of big losses.
- Adjustable: You can customize the Kelly Criterion, like using the Half Kelly or Quarter Kelly, to suit your comfort level, whether you’re cautious or aggressive.
Cons- Needs accurate estimates: For Kelly Criterion to work effectively, you must correctly guess the chances of winning. If you’re wrong, your bets may be too high or low.
- Complicated: It requires mathematical formulas and probabilities, which may be challenging for some.
- Big swings: At times, the Kelly bet size can be large, potentially depleting your bankroll significantly.
- No guaranteed wins: The system doesn’t guarantee wins. You can still lose money if you don’t use it correctly or if your estimates are off.
Kelly Criterion Tips, Hints, and Strategies
The following tips and hints can help you use the Kelly Criterion more effectively.
1. Use a Kelly Criterion Betting Calculator
A betting calculator can simplify Kelly Criterion sports betting by doing the math for you. You won’t have to worry about the math; it’ll simply give you the amount to bet based on the odds and probabilities.
2. Start with the Quarter or Half Kelly Strategy
As a novice to the Kelly Criterion, starting with the Quarter or Half Kelly strategy is a good idea. This means wagering only 25% or 50% of what the formula recommends, helping you reduce risks.
3. Improve Your Handicapping Skills
The strategy works best for people who have a good sense of the chances of winning an event. Spend time getting better at predicting the results of events, so your bets can be more accurate.
4. Avoid Using the Kelly Criterion for Casino Games
The Kelly Criterion is ideal for sports betting or situations where you can figure out the odds/. However, it’s not a good idea to use it for casino games like roulette or slots, where the odds are fixed and always favor the house.
What Are The Betting System Alternatives to Kelly Criterion?
Apart from the Kelly Criterion, casino gamers, and sports bettors can also explore these other betting systems:
- Martingale system: Here, you double your bet after each loss, hoping to eventually win and recover all your previous losses.
- Labouchere system: Also called the cancellation system, this system involves setting a target profit and adjusting your bets based on wins and losses to achieve that goal.
- D’Alembert system: This is a safer method in which you increase your bet by one unit after a loss and reduce it by a unit following a win. The goal is to achieve slow and consistent gains.
- 1-3-2-6 system: This low-risk strategy follows a specific sequence of bets (1, 3, 2, 6) after wins and resets after losses. It aims to make a lot of profit during winning streaks.
- Paroli system: A system where you double your bet after each win to capitalize on winning runs.
- Oscar’s grind: Here, you slowly increase your bet size after every win to recover losses gradually and make small profits.
Use Kelly Criterion Formula for Sports Betting
The Kelly Criterion is a smart system for sports bettors because it helps you make more informed bets based on the chances of winning. Unlike Martingale, where you double your bets after a loss, the Kelly Criterion is all about balancing risk and profit by using probabilities.
When using sports betting apps, Kelly Criterion helps you calculate the exact percentage of your money to stake depending on the odds and probability of winning. This means you’re not just guessing or making risky bets. Instead, you’re betting based on your confidence levels about a specific outcome.
For example, if you think the Golden State Warriors have a 60% chance of winning an NBA game and the odds are favorable, the Kelly Criterion will suggest wagering more money. If the chances are lower, a smaller bet will be recommended to avoid big risks.
That said, you need to be a good handicapper or tipster to use the Kelly Criterion effectively. This means you need to know the sport, the team, and the players to correctly predict the chances of winning. The better you are at predicting outcomes, the more successful you’ll be with the Kelly Criterion.
Can You Use Kelly Criterion Formula For Casino Games?
The Kelly Criterion is not really a good option when gambling at online casinos. That’s because, in most casino games, the odds are slightly in the casino’s favor. Using the Kelly Criterion formula in these cases often gives you a negative number, meaning you shouldn’t bet at all.
For instance, let’s say you’re playing a blackjack game with a 99% RTP (1.01 odds) at a blackjack casino;
- b = 1.01 – 1 = 0.01
- p = 0.99 (your chance of winning)
- q = 0.01 (your chance of losing)
When you enter these values into the Kelly Criterion formula, you get:
- f = (0.01 X 0.99 – 0.01) / 0.01 = -0.01
With a -1 result, the formula is telling you not to place a bet, as you cannot wager -1% of your bankroll. You’re getting a negative number because the casino has a slight edge over you, so your expected return is smaller than your bet. Therefore, we can conclude that the Kelly Criterion doesn’t work great for casino games and, as such, is not recommended.
Can You Use the Kelly Criterion Formula For Poker?
No, the Kelly Criterion isn’t an ideal strategy for poker because poker is a complex game that involves more than just odds. In poker, you’re dealing with many factors like players’ behavior, strategies, and the way the game unfolds. This makes it hard to estimate an exact probability of winning, which is needed for the Kelly Criterion.
In addition, the odds in poker can change from one hand to another, depending on the cards and how players bet. And because the Kelly Criterion relies on fixed odds and clear probabilities, it doesn’t fit well with the unpredictability of poker.
Is The Kelly Criterion Formula Legal?
Yes, the Kelly Criterion formula is entirely legal. It’s simply a math tool that helps you decide how much to bet based on the odds and probabilities. As long as gambling and sports betting are legal in your region, you can use the Kelly Criterion safely and legally without fear of prosecution.
The Last Word
When placing bets at offshore sportsbooks, you can use the Kelly Criterion to increase your profit over time. The strategy helps you know the amount to bet on an event to maximize your returns.
That said, it’s important to understand that the formula works best when you have a good grasp of the odds and probabilities involved. Therefore, it’s not recommended for poker and casino games.
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