Digging into the Kelly Criterion System

A look at the famous Kelly Criterion

Money Management & Betting Systems

Along with famous betting systems like the Labouchere and Martingale ones, another of the most recognisable ones is the Kelly Criterion. Granted the name doesn’t sound too much like a betting system but it is. This one that is generally deemed to be one for the professionals and it does offer a bit of an alternative view of sports betting really because it is not a progression system.

How the Kelly Criterion differs from others is that it is not a progression system or anything like that, it is simply a money-management system which calculates the ideal stake to put on a bet. Of course, there is some math involved to all of this and here we are offering a guide to the Kelly Criterion to inform punters of the available option.

In general, punters can get swept away in the false promises of betting systems. What they offer in structure and bankroll management, they often appeal with their supposed winning-formula but just as with all types of betting the risks of losing are there and they are real. A lot of systems also require and work off the premise of a limitless bankroll. Always weigh up the risks and value of rewards with all of your betting. With all that said, let’s look at the Kelly Criterion

How the Kelly Criterion Works

The Kelly Criterion does work well for football betting and this is something that you also see with things like money management and trades. We are going to be looking at it from a betting perspective only and we’ll just focus on it being soccer bets.

What the Kelly Criterion does is look at the potential for winning at the expense of excess risk and what it does is find that sweet spot of how much of your bankroll to put towards a wager.

There are conditions for the Kelly Criterion and every bet must reach them. Here’s where the fun math part of the system begins.

Stake = (Decimal Odds x % Chance Win) – 1) / (Decimal Odds – 1) * 100

The Probability Factor

A key element of the Kelly Criterion is your input in the system. You are basically looking for higher-than-expected odds on an outcome of a sporting event. This is a bit like Value betting where you are looking for discrepancies in odds that the bookmakers have out there. For example, if you see Player A at 4/1 odds to win a match but you think there’s more of a 25% of them winning (based on your statistical studies like form guide etc) then you could sense an opportunity that the bookmaker odds may be off, and in your favour. You are doing the same in the Kelly Criterion with the key part of the formula % Chance Win.

Putting It Together

So for each bet that you look at you are going to throw the numbers into that formula to try and figure out the Bankroll percentage that you need to put down. So the next step is to look at an example bet.

Example of the Kelly Criterion at work:

Chelsea to win at 10/11 odds (1.91 decimal). That’s our example and now we need to work things out. Our thoughts are that Chelsea has a good 55% chance of winning this game. But we are going to need decimal odds for this so we can plug things into the formula. So now with our 1.91 decimal odds on Chelsea to win, we have

Stake = (Decimal Odds x % Chance Win) – 1) / (Decimal Odds – 1) * 100

Our Example

Decimal odds 1.91
% Chance Win = 60%

Stake = ((1.91 x 0.60) – 1) / (1.91 – 1) * 100

(1.146 – 1) / 0.91
(0.146) / 0.91
= 16% Stake

Your Stake

So in the above example, you would take 16% of your original bankroll and put on the bet. Remember, and this sometimes gets overlooked in Kelly Criterion examples but we can’t stress it enough. The Chance of Winning is all down to your own precipitation and will naturally alter the balance between risk and reward.

In the example, if you had inflated the Chance of Win up to something like 80% then you would end up playing with a stake that’s in the ballpark of 60% of your bankroll. So the risk will have increased exponentially there.

So if you think about this you have the probability of winning and losing being set and determined by you and that is what makes the system tick. So if there is a misinterpretation on your part of the winning percentage you are going to end up paying the cost of that if the result does go against you.

Risks

There are always risks to every kind of bet that you are going to place and you will quickly find that the Kelly Criterion is a very aggressive system. Imagine our example above. That’s a pretty bold stake that the calculation is asking you to put towards your wager. In sports like football, you, of course, have two opposite outcomes that can ruin your bet and our advice would be to be conservative with your probability of an outcome happening. What that will do is help keep the stakes lower.

Variants

You will see different variations of the Kelly Criterion out there as people try and tweak things. What we have described is the basic principle of it all, the base formula that you can get started within the Kelly Criterion. This can be a system which can strike terror into some punters simply because of the complicated math. We understand that and it is a daunting thing to look at, so if you aren’t sure, find yourself a good online Kelly Criterion calculator as that will help you out a lot.

Here we have described the math behind the system so that you can see exactly what is going on. But you don’t have to work everything out by hand because that would anomalously tedious. Use whatever tools you can find to help you out. As always, follow our usual advice of testing this out without money first to see if it works for you.


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