The “Kelly Criterion” is a combined strategy aimed at increasing a bettor’s profits and reducing losses when placing wagers with bookmakers.
This strategy was developed by John Larry Kelly in 1956 and has gained popularity among many experienced bettors and beginners.
The Essence and Principle of the “Kelly Criterion” Strategy
The “Kelly Criterion” is an advanced version of the Value Betting strategy. Unlike Value Betting, however, the Kelly Criterion focuses on calculating the size of each subsequent bet.
Even if a losing streak extends to six bets, using this strategy can help a bettor retain up to 48% of the original bankroll.
Bet Calculation Formula
The bet amount is calculated using the following formula: S = (K × V – 1) / (K – 1) × B, where:
- B – the size of the bankroll for subsequent bets;
- V – the probability (as a percentage) of the event’s outcome according to the bettor;
- K – the bookmaker’s odds for the event outcome;
- S – the stake amount determined through calculation.
This formula applies only to value bets — that is, when the bettor’s estimated probability of the outcome is higher than the bookmaker’s implied probability. The bookmaker’s probability is determined by dividing “1” by the offered odds.
Types of Strategy
The “Kelly Criterion” strategy has three variations:
- “Classic” – described in the sections “Essence and Principles” and “Bet Calculation Formula”;
- “Fractional” – its feature is halving the stake size calculated using the formula;
- “Fixed” – in this variation, calculations use the initial bankroll instead of the current one.
Pros and Cons
The “Kelly Criterion” strategy offers several advantages and a few minor drawbacks. Its disadvantages include slow bankroll growth and the need to find value betting opportunities.
The advantages include:
- minimal risk of quickly losing the entire bankroll;
- high probability of long-term profit.
Example of Using the “Kelly Criterion” Strategy
A bettor prepared a bankroll of $10 to play using the “Kelly Criterion” strategy.
He focused on the Serie A Round 2 match “Roma” vs “Juventus.” He estimated Juventus’s chances of winning at 60%:40%. The bookmaker offered odds of 2.11 for a Juventus victory — which implies a 47.39% probability. According to the bettor, this was a value bet. The stake size was calculated as follows:
(2.11 × 60% − 1) / (2.11 − 1) × $10 = $2.40.
The bettor placed a $2.40 wager on Juventus to win. The match unexpectedly ended in a 2–2 draw. The bet lost, and the player’s loss amounted to $2.40 (24% of the bankroll).
