The Kelly formula, otherwise known as the âKelly Criterionâ helps you to calculate your optimal bet size for potential profits. Originally developed for investors, it has now become popular with sports gamblers.
It takes into account four key elements; your bet size based on your total bankroll, the odds, and the implied probabilities for winning and losing the wager. In this guide, weâll explain the formula in detail with some examples and walk you through the process of putting it into practice.
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Kelly Criterion explained – How it applies to gambling
Originally made for investing, the Kelly Criterion is a formula that is now popular among gamblers. Basically, it weighs up the probability of winning and losing to calculate your ideal bet size.
It also takes into account your
bankroll management, as the stake you should place on each bet is relative to your overall budget. For example, the Kelly formula would give a professional gambler with a $10,000 bankroll a larger result than a casual bettor with $100.
Here is the Kelly formula written down in basic terms:
f = (bp â q) / b
If this looks a bit confusing for you, thereâs no need to worry. Hereâs a quick breakdown of all the values and terms it involves:
| Value | Description | Example |
| f | Your bet size based on your total bankroll | Your total bankroll is $100 and the bet size is $5 (5%) |
| b | The odds displayed in decimal form | 2.50 on the Knicks to win |
| p | Probability of the bet winning as a percentage | 55% of winning = 0.55 |
| q | Probability of the bet losing as a percentage | 1 – 0.55 = 0.45 |
To give you a Kelly Criterion example, here is how it would work with Kara-France to beat Erceg at odds of +140 BetMGM, one of the top
UFC sportsbooks. Letâs say that you have a $1,000 total bankroll
- Total bankroll: $1,000
- +140 = 2.40 decimal odds
- 2.40 decimal odds = 41.67% win probability +Â
- 100% – 41.67% = 58.33% loss probabilityÂ
Now hereâs the formula in action:
| B = | 2.4 |
| P = | 0.4167 |
| Q = | 0.583 |
| Formula: | (2.4 x 0.4167 – 0.583) / 2.4 = 0.75% |
This would tell you to bet 0.75% of your total bankroll ($1,000), so $7.50.
Variations of the Kelly betting system
Although the basic Kelly formula described above always applies, there are a few variations that you can take into account, the two most common being handicapping and bet sizing:
Handicapping
In the example that we used above, we have taken the implied win-loss probabilities based on the odds offered by the sportsbook. However, these odds donât reflect the true probability, as the sportsbook adds a few percentage points (known as the âvig) to protect their profits.
If you want to get a more accurate bet size result, you can handicap the market to try and find the true implied probability. This is similar to what you would do in value betting (discover
what is a value bet
here).
Kelly Criterion example with handicapping
Letâs do the above calculation, but you handicap Kara-France to 45.45% implied probability.
Hereâs how it changes things:
| B = | 2.4 |
| P = | 0.4167 |
| Q = | 0.583 |
| Formula: | (2.4 x 0.454 – 0.546) / 2.4 = 0.86% |
Alternative
Kelly bet sizing
– Halving and quartering
If you think that the result you get when using the Kelly formula is too large or too risky, you can take a more conservative approach to reduce your bet size by a half or a quarter like so:
- Halving:
Divide your bet size (f) by two
- Quartering:
Advice (f) by four
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Kelly Criterion – Pros and cons
With the basic explanation and examples out of the way, here is a summary of the main pros and cons:
- Efficient form of bankroll management
- Can increase likelihood of winning profit
- Used by some pro bettors
- Can be altered for a more conservative approach
- Not beginner-friendly
- Doesnât work without good handicapping skills
Top Kelly strategies
Here are some other strategies that you can use in combination with the Kelly formula:
Always keep basic bankroll management in mind first
Always prioritize the basic rules of bankroll management above this formula. It is generally recommended that you bet no more than 1 – 5% of your total bankroll on a single bet. Therefore if the formula gives you more than this, consider halving or quartering.
Get good at handicapping first
As we told you earlier, handicapping is key to getting accurate results from this formula. Before you get into Kelly betting take some time to practise and get good at handicapping first.
Two things that you need to keep in mind with this formula is that profits are not guaranteed and that you wonât land massive wins. You therefore need to be prepared to be patient and aim to build up your bankroll over a longer period of time.
If you are going to change your stake based on the results that you get from the Kelly formula, it should always be down the road. It wonât work if you use a Martingale-style approach and double up on your recommended stake.
Donât use it on casino games
The final point is that you can only use the Kelly strategy for sports betting or poker. If you try it with online casino games, you will always get a negative result due to the fixed house edge.
How to place a Kelly bet – Step-by-step
Now that weâve covered the basics and some top strategies, here is a step-by-step guide to help you bet the Kelly formula into action when betting on sports:
- Create a sports betting account – Check out our reviews of the top US sportsbooks here at TheGruelingTruth and create your online betting account.
- Make your first deposit
– Once your account has been created, you will need to deposit funds using your payment method of choice.
- Claim your welcome offer
– Make sure to enter the promo code required to claim your welcome offer.
- Browse the odds and markets
– Take a look at the sports betting markets and find the bet you want at decent odds.
- Use a Kelly calculator
– Enter the odds for each outcome and your overall bankroll into a Kelly calculator to find your recommended stake.
- Place the bet
– You can now add the bet to your bet slip and enter the stake as recommended by the Kelly formula.
We mentioned this in your strategy tips above but itâs worth expanding on a little bit. Due to the flexibility of the odds and implied probability, this formula will work over a long period of time for sports betting, poker, and investing. However, because the odds for casino games are fixed, it will not work for online casino gambling.
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The Kelly factor – Summary & conclusion
To summarize, this is a formula, rather than a strategy that gives you the optimal betting amount for profit maximization. It is not a guaranteed way to ensure profits and you will have to play the long game if you want to see it work. Crucially, you should remember that if you get a negative result when using this formula, the bet is not worthwhile at all and you should look for an alternative market.
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â What is the Kelly Criterion?
The Kelly Criterion is a formula that is used in investment and sports betting. Basically it assesses your total bankroll, chance of winning, and risk to give you the ideal amount to wager if you want to maximize your profits. Discover more about the Kelly bet formula,
hedge betting, and more here at TheGruelingTruth.
Officially, the formula is f = (bp â q) / b. To break it down in layman’s terms, you need to enter your total bankroll, the odds, chances of winning and losing to get the ideal percentage of your bankroll to bet. You can then go for a more conservative approach by either halving or quartering the result.Â
đ§ Does the Kelly Criterion work in gambling?
If you are good at handicapping, meaning you can find the real implied probability for outcomes rather than those altered by the sportsbook, then this formula can work over an extended period of time. However, while it can work well for sports betting, it does not work for casino gambling.
