What is Kelly Criterion in Sports Betting?

Kelly Criterion Explained in Detail

The Kelly Criterion was developed by John Kelly at Bell Labs in 1956 for signal noise applications and later adopted by gamblers and investors. The formula is: Kelly % = (bp - q) / b, where b is the decimal odds minus 1, p is the probability of winning, and q is the probability of losing (1 - p).

For example, if you believe a bet has a 55% chance of winning at -110 odds (decimal 1.909), the Kelly formula gives: (0.909 x 0.55 - 0.45) / 0.909 = 5.5% / 0.909 = 6.05%. This means you should bet 6.05% of your bankroll according to full Kelly.

The problem with full Kelly is that it assumes you know your exact edge, which you never do in sports betting. If you overestimate your edge by even a small amount, full Kelly can lead to catastrophic losses. This is why most professionals use fractional Kelly, betting 25-50% of the recommended amount. Half Kelly provides 75% of the growth rate of full Kelly with significantly lower volatility.

The Kelly Criterion also tells you when not to bet. If the formula returns a negative number, the bet has negative expected value and should be skipped. This is a valuable reality check for bettors who might be tempted to bet on a game where they do not actually have an edge.

While the math behind Kelly is sound, its practical application in sports betting is limited by the difficulty of accurately estimating win probabilities. Most sharp bettors use Kelly as a general guide for relative bet sizing rather than a precise formula. A bet where your edge is large warrants a bigger wager than one where your edge is marginal.