Kelly's criterion in sports betting

 

Among the many betting systems that exist today is the one known as the Kelly Criterion, a system devised by John Kelly in 1956 and the main objective is to maximize the growth of our bankroll, but in the long term, determining what is the optimal stake for each of our bets.

 

This system has an advantage and that is that we will be able to manage the funds in a more efficient way than with other systems and if done well, we will prevent a bad streak from wiping out our entire bankroll, practically eliminating the risk of the dreaded bankruptcy. , but yes, a large part of the proper functioning of the system depends on our real ability to hit percentage, so in the case of a sports bet, you have to know the two teams well.

 

To perform this calculation, you must apply this formula:

 

% of bankroll = (((Odd x (Probability estimate / 100)) - 1) / (Odd - 1)) x 100

 

What is probability estimation?

 

It is the percentage that is deducted that the team that you bet to win can have. But to understand it better, we are going to give a practical example: we have a bankroll of 500 and we want to bet on the victory of Real Madrid against Schalke 04 and we want to bet on the victory at home of the white team with a odds of 3.

 

According to our data, Real Madrid has a 40% probability of winning in the field of the German team and therefore we need to know how much of our total fund or stake, we can risk in our bet. To do this, the Kelly Criterion will have to be performed:

 

% of bankroll = ((3 x (40/100) - 1) / (3 - 1)) x 100 = 10

 

Therefore, following this criterion, the most appropriate amount for the bet would be 10% of our bankroll, which would be 50 euros that we could bet on Real Madrid making a safer bet.

 

The Kelly Criterion Strategy Explained

 

The Kelly criterion was developed by scientific researcher J.L. Kelly in 1956, and it has become one of the best known betting strategies. It is a method used to maximize the potential profit from any bet or investment, and can be applied to any form of sports betting. It is also used in financial markets. While there is a level of complexity involved in its use, in addition to a degree of risk, it has become popular with bettors.

 

What is the Kelly Criterion?

 

The Kelly Criterion is a relatively simple mathematical formula that can be used to calculate the ideal level of bet to be used on any bet, calculating the expected level of return of the bet, and applying this to get the bet bank of the bettor.

 

As simple as it sounds, there is an element of complexity. One effect of the Kelly criterion is that the higher the probability level of the win, the higher the stake, to maximize the return. So to use the formula in the most efficient way, you must calculate the chances of any bet being successful.

 

How does it work?

 

To demonstrate how the Kelly Criterion works, we must assume that you can analyze the probability of a successful bet with a reasonable degree of precision. With this information, we can use the Kelly criteria to calculate the bet, with the following formula:

 

(bp – q) / b = f

 

In this equation, "b" refers to the multiple odds available for the bet in question. For example, if the decimal odds of a bet are 4.0, then the letter B is 3. The letters "p" and "q" refer to the bet's probability of winning and losing respectively. So if a bet has a 55% chance of winning, then p will be 0.55 and q will be 0.45. Finally, "f" is the answer to the equation and refers to the fraction of your total budget to use on this bet.

 

If we take an example of a bet where the decimal odds are 4.0 and the probability of that bet of winning is 35%, we can apply the relevant numbers to the equation as follows:

 

((3*0.35)-0.65) / 2 = 0.4

 

Based on Kelly's criteria, for this bet, even though the probability of losing is higher than the probability of winning, your bet should be 40% of your budget.

 

The importance of value

 

An important aspect of Kelly Criterion is that it can tell you when a bet offers value. Value is a vital concept in sports betting. Generally speaking, you have found value when the probability of it being successful is higher than the implied probability 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 chance of that bet is greater than 25%, then you have identified a bet with a positive expected value.

 

In the example above, the response to the Kelly criterion is a positive number. This tells you that you have found a valuable bet. If the answer to this equation had been a negative number, this would show that the bet does not have a positive value, or, in other words, that the chance of the bet being successful was smaller than the total implied probability. Since it is a fundamental rule of the betting that you should only bet when you expect a positive value, when it returns a negative number, the Kelly criterion is telling you that you should not bet.

 

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