Sports Betting – Introduction to Money Management

Probably the least understood aspect of successful sports betting is related to money management. Money management is just as important as handicapping when it comes to having a profitable season. Sheer odds will dictate that everybody will pick winning teams on occasion, but not everybody knows how to manage their money in a manner that will maximize profits or minimize losses.

The first ingredient to proper money management is to establish a fund strictly for wagering. More commonly referred to a bankroll, this fund should be money that you can afford to lose, and should not consist of the rent payment or your kid’s college tuition. If you can’t afford to lose, you have no business betting. It’s as simple as that. Wait until your financial situation improves to the point where you can afford to lose a bit of cash and jump in at that point. The NFL, Major League Baseball, or the NBA aren’t going anywhere and will still be around for you to wager on, whether if it’s next week or next year.

Once your bankroll is firmly established, you’re ready to begin planning your assault on the bookmaker and your first step is determining the amount of your wagers. The method favored by most sophisticated gamblers involves wagering a percentage of your bankroll on each bet. This method is more commonly known as the Kelly Criterion and nearly all successful money management plans will use some type of variation of Mr. Kelly’s work.

Kelly Criterion

In 1956, the Kelly Criterion was developed by Edward L. Kelly, a physicist with AT&T Bell Laboratories. Kelly’s original concept was developed for betting on thoroughbred horse racing, but is applicable to all types of gambling, including the stock market and blackjack.

Kelly’s method is a mathematical formula that gives the percentage of bankroll to be wagered on an event to maximize profits, based on the odds and the probability of winning the bet. The formula looks more complex than it actually is and can be stated in three simple steps.

1. Multiply the odds of the event by the probability of winning.

2. Subtract the probability of losing from the number obtained in the first step.

3. Take the number obtained in the second step and divide by the odds.

For demonstrative purposes, let’s assume we are a football bettor who has a 56% winning percentage over time and is comfortable using that figure as the expected winning probability for future bets.

1. The first step is to take our 56% and multiply it by 11/10, the odds we give on a football bet, so we get .56 * .91 = .509.

2. Since our odds of winning are 56%, our odds of losing must be 44% or .440, which subtracted from .509 will give us a figure of .069.

3. Take .069 and divide by .91 and you will get a figure of .075 or 7.5%, which we would round up to 8%, therefore 8% would be the recommended percentage of your bankroll to wager on each game.

The Kelly Criterion also can be used when your odds of winning are less than 50%, but the odds are in your favor so that over the long run such a situation should yield a profit. For example, take a baseball team that we estimate has a 40 percent chance of winning a game, but sees the favorite installed as -180 (risking $180 to win a $100) and the underdog listed as +165 (risking $100 to win $165).

1. The first step is to take estimated odds of winning (40%) and multiply by the given odds of +165, so our first set of numbers shows .40 * 1.65 = .660.

2. Next, we take our probability of losing, which we have estimated to be 60% or .600 and subtract that from .660 and get .060.

3. The final step is to take our number from the second step (.060) and multiply by the odds on the game (of 1.65) and we get .060 * 1.65 = .099, which we would round up to .10 or 10%. Therefore, the suggested betting size in this situation would be 10% our bankroll.

For straight 11/10 wagers, the following table shows the recommended bet size per the Kelly Criterion. The figures in the left column are what we guess our winning percentages will be, while the number to the right is the Kelly Criterion’s recommended percentage of our bankroll to wager on the event.

If we estimate our winning percentage in football betting is going to be 54%, the Kelly Criterion would have us wager 3.40% of our bankroll on every play. If we believe we will hit 57% winners, the Kelly Criterion has us betting 9.70% of our bankroll on each play.