Kelly Betting Systems

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Kelly Criterion Sports Betting Strategy

Kelly betting systems are ones that use the Kelly criterion. This is a mathematical formula which tells you how much to bet in any given situation. It is essentially a risk and reward calculation that can be applied to gambling or investing.

This method is great for trying to maximize your bankroll and for managing your money. Because it helps you to bet according to the available odds, rather than whim, it can be very useful if you want a greater level of control over your gambling campaign.

Kelly Betting System Quick Tips

If you exploring the use of Kelly betting systems for the first time, you could probably benefit from a few quick tips to help you get started:

  • If you aren't perfectly comfortable with math, go slow. Study this guide carefully rather than rushing.
  • Work through the example calculations given rather than simply readsing them. That will make it much easier to connect theory with practice.
  • Understand that this system is best suited to bettors who want to control their bankroll. It is not a system for picking winners.

Although this isn't a system for picking winners, it can help you to determine stakes for any sports betting event. It can therefore be applied equally well in American football, soccer and horse racing markets, to name just three.

What Are Kelly Betting Systems?

Kelly betting systems are those which use the Kelly criterion to help you calculate your stake in any given situation. To use a Kelly betting system, you have to use a formula every single time to get from one scenario of numbers to the next. This shows a formula as follows:

(bp-q) / = f

Right off the bat, you should understand that the letters in the above formula are simply placeholders. You will need certain numbers to plug into these positions to get what you are looking for. 

b is going to be the multiple of your stake that you can win from the proposed wager. For decimal odds, b is equal to odds, minus 1. 

For example, placing a $10 bet on 3.00 odds returns you a total of $30, which includes your original stake. The amount of profit that was won was $20, or a 2 based on the original stake. 

p is going to be the probability of the proposed wager actually winning. So a 40 percent wager is 0.40. 

q is the probability of the wager actually losing. Using the 40 percent above, you can see that the remainder of the odds is now 60 percent. So, this is .60 and is therefore 1-p

f is the answer to your problem. This provides you with the suggested fraction of your bankroll that you should stake on the wager. 

The Formula in Action

Let us now work through the formula just explained in order to see how it works in action. We will take the previous example figures and assume that we are calcualting for a situation in which: 

  • The proposed wager has odds of 3.00
  • Winning probability is 0.40
  • Losing probability is 0.60

Based on these variables, our calculation would be:

((2 x 0.40) - 0.60)) / 2 = .10

So the 2 is when you look at the proposed wager (of 3.00) and subtract 1. You then multiply 2 and 0.40 together to get 0.80. 

Next, you take 0.80 and subtract 0.60 to get 0.20. Then, you divide 0.20 by 2, and you get .10. 

Based on this equation and outcome, you should only be wagering 10 percent of your bankroll on the proposed wager. Even though your chances of losing are greater than what they are of winning, this wager is a positive expected value due to the size of the odds. 

Kelly Betting Systems: Expected Value

One great feature of the Kelly betting system is that it will keep you honest. The expected value should always be a positive number because you want to bet on things with the likelihood of making a profit. 

The positive expected value is the probability of a wager winning when it is higher than the implied probability of the odds. In other words, your goal is to wager on events with greater odds to compensate for the risk of wagering. 

So 2.00 has an implied probability of 0.50. This means that it has roughly a 50 percent chance of winning. If you believe that it has a greater than 50 percent chance of winning, this is a positive expected value. 

If a number comes out negative, this is a sign that either something went wrong in your calculation or you do not need to bet on it at all. Let us look at the example.

  • Team A: 2.60
  • Team B: 4.50

You think that Team B will win at .65 (65 percent) odds. Then you put the numbers to the test:

((0.50 x 0.65) – 0.35) / 0.50 = -0.05

Looking at the finished product, you have a negative number. Although the odds show a good chance at success, they are not high enough to really justify your action of placing a bet on it. 

Kelly Betting Systems: Pros and Cons

Although this system aims to help you make better wagers, it does have flaws in some areas. As with any system out there, you will always have the good and the bad. 

Pros (+)

The first advantage of Kelly betting systems is that they you decide how much to bet based on math. For newer gamblers, Kelly betting systems aren't that complicated once you know how to read and apply the formula. 

The second positive thing about this system is that you are effectively growing your bankroll at a slower pace and preserving your money at the same time. For people that enjoy a sound approach to money management, this system has you covered. 

Finally, this system shows you the positive expected value of a bet. As such, it can show you a negative one too. This will help turn you away from making bad bets. 

Cons (-)

One potential drawback of this system is that it requires you to know how to plug in the numbers and apply the formula correctly. If you apply the formula incorrectly, you could end up betting too much or too little. You could even come out with different expected values that would alter the bet entirely. 

The last thing that people might not like about this system is that it shows a relatively higher stake at 10 percent with the example above. Most people like to bet a little more conservatively. 

One fix to this is what some people call the 10 percent Kelly fractional betting system. This means that whatever the stake comes out to, you can take 10 percent off of that and place a smaller bet. You could just, by default, take half off to be very conservative, but 10 percent is a good start.

Kelly Betting Systems FAQ

Can the Kelly betting system help me make smarter bets?
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When using this system, you are still going to have to do your research for whatever you are betting on. This should only be used to effectively plug in numbers and come up with an edge in the value of the bets to help with managing your bankroll.

I want to bet on an event, but I keep getting a negative expected value. Can I still bet on it anyway?
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First, make sure you have checked every number possible to see if you have missed something or have done a step wrong when calculating. If that still comes out to be negative, then you should decide for yourself if your research justifies the bet you want to make.

As mentioned, the risk is higher than what the money is needed for it when it is a negative number for the expected outcome. You should keep to your betting strategy for the long term to better come out ahead. However, if you are willing to risk more than what you normally do, then that is on you and your betting practices.

Can this be applied to any sport?
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This works best if you have decimal odds, but other than that, yes, you can use this for any sports. In fact, other versions of this bet are called Kelly strategy, Kelly formula, and Kelly bet.

Interestingly enough, this equation was not even meant for betting in the first place. The founder, John Kelly, was a researcher at a place called Bell Labs and used this formula to help analyze long-distance telephone signal noise.

Some people have even used it for financial betting or for managing their portfolios. The equation is slightly different for those practices, but the concept is the same.