Kelly Criterion – The Perfect Staking Size?

There are many strategies for finding the ideal staking size. Some players follow flat betting, some players have a variable staking based on the size of their bankroll, while others bet based on units. But statistically, one staking strategy beats the others. We are talking about the Kelly Criterion, a strategy where the stake is proportional and dependent on the estimated edge.

What is the Kelly method?

Scientist J.R. Kelly first described the method and it is named after him. It is a formula for bet sizing that is based on your perceived edge, and statistically, it is certain to be more profitable than any other staking strategy in betting.

The Kelly formula is:

(BP – Q) / B

B is the decimal odds minus one.

P is the probability of winning the bet.

Q is the probability of losing the bet. (Can also be mentioned as 1-P)

To put it into words, the formula looks like this:

(Decimal odds minus 1 * win probability – lose probability) / decimal odds minus 1

For instance, if you can get odds 2.10 for a coinflip, which has a 50% chance of winning and a 50% chance of losing, it would look like this:

(1.1 * 50 – 50) / 1.1 = 4.54

In this example, you would be advised to place 4.54% of your bankroll on the bet in order to maximize the value.

The point of the Kelly Criterion is that it optimizes your winnings so that you get maximum value whenever you find a +EV bet. However, while the Kelly principle is the best strategy on paper, some adjustments should be made when using it for your real-life betting.

Implementing the Kelly Criterion

In order to implement the Kelly Criterion into your betting, you must be following the value betting principle. It is necessary to estimate the probability of winning and losing for every bet you make. Otherwise, it is impossible to put the Kelly formula into use.

A good idea is to have a spreadsheet ready where you only have to fill in the odds and the probability. Then you will get a quick Kelly calculation every time you need to place a bet, and you won’t have to sit with the calculator.

Of course, you also need to know the size of your bankroll, so that you can place the percentage that the Kelly method recommends.

Let’s make a real-life example.

In a Premier League match between Arsenal and Newcastle, the Asian line is -1.5. Both teams are priced at 1.96. However, after making your analysis of the match, you believe there is a probability of 55% that Arsenal will cover the line, so that equals a value bet. The question is – how much should you bet? According to Kelly, the calculation would look like this:

(0.96 * 55 – 45) / 0.96 = 8.12

Kelly Criterion says you should place 8.12% of your bankroll on this bet to maximize the potential of the value you’ve found. This would, on paper, be the ideal staking size for taking advantage of the value.

However, the Kelly method is quite aggressive sometimes, and betting 8.12% of the bankroll is probably way too risky for most players. So a good idea is to only use a percentage of the Kelly result so that you minimize the risk, while still following the concept. But more on that later.

The best way to grow a bankroll

On paper, the Kelly Criterion is by far the best way to grow your bankroll. It is theoretically superior to any other staking method. The reason is obvious – the Kelly method is based on the value you’ve found, and as every sports bettor knows, value betting is the key principle in sports betting.

Flat betting is safe and easy, but it doesn’t take value into account.

Unit betting does take value into account but in a very subjective way. Most unit bettors make a quick estimation in their head of how many unit a bet is worth, but most of the time, they follow no exact formula.

Variable betting is very efficient in growing your bankroll as long as you find value, but like flat betting, it does not maximize the potential of every value bet you find.

Therefore, overall, the Kelly formula is the best for maximizing profits, and we guarantee you that most professional bettors are aware of the Kelly Criterion and most likely using some form of it.

Adjustments should be made

The Kelly Criterion is absolutely amazing from a theoretical point of view. BUT! It is highly risky, and it does not withstand variance so well.

Therefore, if you want to use the Kelly method when you bet, you have to make some adjustments.

We would recommend using only a small percentage of the full Kelly recommendation. In the example with the Arsenal-Newcastle match from earlier, Kelly advised an 8.12% bet on Arsenal. That would simply be too much to stake on one bet. Because variance is a huge part of sports betting, and even when we do everything right, we might still hit times with lots of bad luck. Even the best players have tried losing 10 bets in a row, despite all of the bets having value and beating the closing lines.

So we need to make the Kelly staking more resistant to variance.

In our experience, you get the best result from using between 20-30% of the Kelly calculation. So if Kelly recommends betting 8.12% as in the example earlier, and you stick to 30% of Kelly, then your wager should be 2.4%. Much more reasonable indeed.

This will ensure that you still maximize value, but that you adjust to the variance so that a few losses won’t hit you too hard.

Aside from using only a percentage of the result in the Kelly calculation, you should also have a maximum bet sizing established. It could be 3% or 4%. So if Kelly recommends a 6.5% stake on a bet, even when you are using 30% Kelly, your stake will max out at 3%, 4% (or whatever number you choose) so you don’t get overly exposed to negative variance.

Ultimately, the point is that Kelly works, but that you have to be very conservative with your estimations, and that it is a great idea to adjust the Kelly bet sizing to a proportionally smaller number. That makes the Kelly Criterion work in your real life betting, and that will really help you grow your bankroll.

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