Kelly’s Criterion is a financial strategy for sports betting. Although suitable for financial markets, investment, blackjack, poker, and more.
Kelly’s Criterion in sports betting is designed to bet the appropriate amount from your bankroll to the event. Here is Kelly’s formula:
bp – q / b, where:
b = bookmakers’s odd – 1
p = probability of occurrence event
q = probability that this event will not occur
Kelly’s biggest problem is the precise definition of the probability of an event. For this you need to do tests in your statistical model. To precisely determine the probability of an event, use the Poisson distribution.
In the previous article, we analyzed the Poisson distribution, to predict football matches. For example, by conducting calculations with Poisson, you have determined that the probability of a victory of team A is 55%. And the bookmaker’s odd for same team is 1.85.
We use the Kelly’s formula ((1.85 -1) x 0.55) – 0.45)) / (1.85 -1) = 0.4. Kelly tells to bet 40% of your bankroll. But since our probabilities can’t be accurate and to reduce the risk, we need to divide that value by 4, 6, 8. To find the number to divide, you need to test your model and pick the best result for you.
Bankroll management betting
Bankroll management at betting is as important as the calculation of own probabilities. Therefore, consider the Kelly Criterion as an addition to the Poisson distribution. This is important knowledge before starting to study the development of a statistical model for sports.
Learn how to invest in betting at the next article: “Sports Trading“.