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If you've ever dabbled in sports betting, you know how easy it is to get caught up in the thrill of a win or the sting of a loss. But what if there were a mathematical formula that helped you make smarter bets—bets that maximize your profits over time while minimizing your risk of going broke?
Enter the Kelly Criterion.
What is the Kelly Criterion?
The Kelly Criterion is a money management formula developed by John L. Kelly Jr. in 1956. It was originally created to optimize long-distance telephone signal noise but was quickly adopted by gamblers and investors for its ability to manage risk and grow wealth over time.
In the world of sports betting, it tells you exactly how much of your bankroll to wager on a given bet, based on your perceived edge and the odds being offered.
The Formula
Here’s the basic version of the Kelly Criterion for American odds:
Kelly % = (bp - q) / b
Where:
- b = Decimal odds - 1 (i.e., profit per $1 bet)
- p = Probability of winning (your estimate)
- q = Probability of losing = 1 - p
Example: Betting with an Edge
Let’s say you’re looking at a bet with +150 odds, and you believe the team has a 45% chance to win.
- Convert +150 to decimal odds:
+150 = 2.50 decimal, so b = 1.5 - Use the formula:
Kelly % = (1.5 × 0.45 - 0.55) / 1.5
Kelly % = (0.675 - 0.55) / 1.5 = 0.125 / 1.5 ≈ 0.0833 - That’s 8.33% of your bankroll.
So, if your bankroll is $1,000, you’d wager $83.30 on that bet.
Why Use the Kelly Criterion?
- Maximizes growth: Over time, betting the Kelly amount yields the highest possible return on your money.
- Minimizes ruin: Betting too much can wipe you out quickly. Kelly keeps your bets sized in proportion to your edge.
- Disciplines your bankroll: It’s a system—one that protects you from emotional, all-in decisions.
Kelly Caveats
- Requires accurate probabilities: If your estimate of the chance to win is wrong, the whole calculation falls apart.
- Can suggest large bets: If your perceived edge is big, Kelly will tell you to go big too—which may feel risky.
- Many bettors use "fractional Kelly": Betting half or a quarter of the recommended amount to smooth out volatility.
Final Thoughts
The Kelly Criterion is not a crystal ball—it doesn’t tell you which team will win. What it does offer is a mathematical approach to bankroll management that can help you grow your betting funds over time, provided you’re good at identifying edges.
If you're making educated picks and want to bet smarter, not harder, Kelly is your friend.
