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The Kelly Criterion Betting System

The Kelly Criterion betting system is ideal for those who are good at comparing the value of their bets. It was invented by an intelligent American, John L. Kelly, who aimed to find the best way to size your bets according to the offered value.

  • What is the Kelly Criterion system?

The Kelly Criterion is actually a system centered on money management, a technique used to optimize the potential of winning at the expense of excess risk so that the bettor can find the perfect amount to wager on the bet based on the bankroll. The basic formula is BR% = (P*B) – 1 / odds – 1. In this case, BR% is the bankroll percentage we should stake according to the system, P is the probability of winning and B the odds offered. If the bettor applies this formula and gets a positive number for the BR%, then it is safe to wager. However, if the number is negative, betting isn’t recommended.

  • A useful example

Let’s say for example that you are offered the odds of 1.91 or 10/11 in fractional odds that Barcelona will beat a reduced Real Madrid side at home and you are an experienced bettor. After using your bet analysis tools you get a 55% chance of winning that you trust as being real. If you use the Kelly Criterion formula you get BR% = (0.55*1.91) – 1 / (1.91 – 1). This means that the system indicates you should bet 5.5495% of the bankroll.

  • Issues of the system

As you can see, the clue for getting the wager right is to correctly estimate the probability for the outcome. If the 55% estimate illustrated in the previous example was slightly off and the real probability was actually 52%, according the Kelly Criterion you should not bet. This can happen because analyzing sports events is a dynamic process and new data can arise from multiple angles in every moment. Getting a perfect number is a challenging task and most people have many problems finding the value. A solution would be betting ½ Kelly, ¼ Kelly and so on, although you still need a correct estimation of the value.

  • How to apply the Kelly Criterion

The successful use of the system depends on the bettor’s ability to understand sports and to get lots of information on the sport you bet on. Solid knowledge in probability and statistic is also essential. Moreover, if you want to use the Kelly Criterion you will need to be able to tie the information together about the game and the participants with the data. If you are like most Sunday bettors, flat betting is probably best for you. However, if you are very precise in sports handicapping, you can benefit from the Kelly Criterion.

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