Set aside a certain amount for each season, sport, month or any other way you want to do it. The most important thing is to actually put that money on the side. This is not money you need for daily expenses. The funds here are strictly for sports betting. Based on your bankroll you will risk 1-2% of it per bet. Bankroll management is more than simply quitting while you’re ahead – placing regular sports bets requires as much hard work and forethought as running a business. After all, the important part of placing sports wagers is your return on investment, also known as ROI.

When we speak about the long term success of a betting system, a major component that needs to be thoroughly planned out and implemented is bankroll management. Not just any bankroll management either. Successful sports bettors have solid, unbending rules in place as part of their system. They implement these rules along with the rules for picking the sports plays they wish to wager on. They should not waiver from the plan. The Kelly Criterion in sports betting is just one of the bankroll management solutions that is currently being used by many handicappers and is definitely worth considering when devising your own money management strategy to follow along the way.

Previously, I have written an article on bankroll management. You can read that article here. In that article I discuss the flat betting approach, the variable betting approach and the Kelly Criterion approach. For this article, I am going to further focus on the sports betting Kelly Criterion approach, as it is a very solid approach in my opinion.

About John Larry Kelly, Jr. – The Gentleman Behind the Formula

John Larry Kelly, Jr. was born in Corsicana, Texas on December 26, 1923. He devoted four years of his life in the US Navy as a pilot and served in the World War II. Kelly studied at the University of Texas at Austin and earned a PhD in Physics in 1953. After graduation, he worked in the oil industry. He would later change jobs and became employed with Bell Labs in Murray Hill, New Jersey. During this time he would devise a formula as part of an article published in an 1956 issue of the Bell System Technical Journal. That article was entitled “A New Interpretation of Information Rate”. That formula would become known as the Kelly Criterion. Many sports bettors and Wall Street investors including Warren Buffet are advocates of this theory in terms of bankroll management.John Kelly died of a stroke in 1965, but his criterion remains imperative to many.

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Why Is Bankroll Management Important in Sports Betting?

So, why is bankroll management important in sports betting? Sounds like a silly question really. After all, bankroll management is imperative in pretty much everything we do. If your salary from work is $50,000 per year, we would obviously like to budget and make that $50,000 work best it can. After all, budgeting enables you to generate a solid spending plan for the money you’ve earned. Spend a little here. Save a little there.

In sports betting, the same can be said. As our bankroll grows, so does the amount we wager per play. If we are in the midst of a losing streak, we may wager less per play and have our bankroll sustain longer. Solid bankroll management is a key component to becoming a profitable sports handicapper. Without a solid bankroll management system in place and the unwavering ability/mindset to stick with that solid system, you could end up squandering bankroll despite sustaining a decent winning percentage.

If we wish to become an effective long-term sports handicapper (and that is the goal, correct?), bankroll management is just as fundamental as selecting winners. We never want to be reckless with bankroll. Never.

The Mathematics Behind the Kelly Criterion

So, let’s get back to the Kelly Criterion in sports betting. The Kelly Criterion is used to control the size of any potential wager. The mathematical equation is as follows:

(bp-q) / b =f

Where “b” is the multiple of our stake we can potentially win (decimal odds less 1). “P” is the probability of winning. Conversely, “q” is the probability of losing. And “f” is the fraction of our bankroll we wish to put at stake.

Let’s say we have a $1000 bankroll. Let’s further say your well thought out and back tested handicapping system wins 55% of the time. Let’s say the Los Angeles Dodgers are favored with a money line of -110. After dotting all your “I”s and crossing all your “t”s, your system has the dodgers winning.

In above equation:

b = 0.909 (-110 moneyline is 1.909 in decimal odds – 1 = 0.909)

p = .55 (or 55%)

q = .45 (or 45%)

(0.909 * .55 – .445) / .909 = .05495

Because our bankroll is $1000 we would hence wager ($1000 * .05495) or $54.95.

Note: A decent odds converter for decimal odds can be found here at actionnetwork.com. Another can be found here at sportsbookreview.com.

Also, a decent calculator for the Kelly Criterion itself can be found here at sportsbookreview.com.

Potential Issues with the Kelly Criterion in Sports Betting

Utilizing the Kelly Criterion does not select the plays themselves. It only provides you with a bankroll management strategy. You will still need to heavily backtest your handicapping strategy and then use a bankroll management strategy (such as the Kelly Criterion) for a chance at sports betting success. Regarding the Kelly Criterion, there are still blank spots in the equation that need to be worked out accurately. Those variables are p (for the perceived probability of winning the wager) and q (for the perceived probability of losing the wager). Your handicapping strategy will help devise these figures.

Furthermore, many believe that the Kelly Criteria has the tendency to be overly aggressive. In the above example, the $54.95 dollars is over 5% of our total bankroll. Many handicappers will not wager more than 2% of their total bankroll on a single play. For this particular reason, many bettors will utilize a strategy known as a fractional Kelly. A fractional Kelly simply uses a fractional amount (usually ½) of the stake devised by the Kelly Criterion.

Conclusion

When used correctly, the Kelly Criterion can help find wagers that offer a distinct edge over the sportsbook you are wagering with and, conversely, find those bets that are not in your favor and should be avoided. Whether you decide to incorporate the Kelly Criterion, a fractional Kelly, a flat betting approach, or a variable betting strategy into your system, do it. Plain and simple. A bankroll management blueprint is vital and should be required for any decent handicapper in order to better manage the risk involved.

How does the Kelly criterion calculator work?

By entering your bankroll, the odds and your estimated probability of winning, the Kelly Criterion calculator will tell you how much you should wager on a certain event to maximise your value and profit.

Use the Kelly Criterion Calculator here

Bankroll Calculator Sports Betting Parlay

According to the Kelly criterion, you should place a wager of approximately 1.18% of your account balance on this selection.

After applying the fractional Kelly value of 0.04, this adjusts to a wager of approximately 1.71% of your account balance.

Based on your account balance of $1,000, this equates to a wager of $11.76.

The expected value of this wager is approximately $11.76*[(0.68)(0.60) + (-1)(0.4)] = $0.09, which equates to a 0.80% return on the funds wagered.

The Kelly criterion returned a value of -0.0061.

After applying the fractional Kelly value of 0.0, this adjusts to -0.0061 of your account balance.

Because this number is below 0 you should not back the selection at the available odds.

What is the Kelly Criterion?

Bankroll Calculator Sports Betting Calculator

The Kelly Criterion is a method by which you can used your assessed probability of an event occurring in conjunction with the odds for the event and your bankroll, to work out how much to wager on the event to maximise your value. By inputting the odds, the probability of the event occurring and your betting balance, you will be able to determine the amount you should wager on the event. The fractional Kelly betting input is a way to change how aggressive or conservative you are with your wagering (1 being the standard and moving towards 0 the more conservative you wish to be with your wagering). Ultimately, the Kelly Criterion calculator, if you are accurate with your assessed probability should increase your value and profit over a long-term period.