If you want to optimize your betting strategy and maximize your profits, you might have heard of the Kelly Criterion. It is a formula that tells you how much to bet on each outcome based on your estimated probability and the odds offered by the sportsbook. This sportsbook PPH tutorial will explain how you can use Kelly Criterion in a sportsbook.
The Kelly Criterion was developed by John L. Kelly Jr in 1956. He applied it to a scenario where he had to choose between two phone lines with different noise levels and signal strengths. Additionally, he wanted to find the optimal way to allocate his bets on each line to maximize his long-term growth rate.
The Kelly Criterion can be generalized to any situation where you must bet with different probabilities and payouts. The formula is:
f* = (bp – q) / b
Where:
- f* is the portion of your bankroll to wager on each outcome
- b represents the received net odds (e.g., b = 2 for a +100 bet)
- p is the chances of winning the bet
- q is the chance of losing the bet (q = 1 – p)
The Kelly criterion tells you to bet more when you have a higher edge over the best sportsbooks and less when you have a lower or negative edge. It also tells you to avoid betting when you have no advantage (f* = 0).
How to Use the Kelly Criterion in a Sportsbook?
To use the Kelly Criterion in a sportsbook, you need to estimate the probability of each outcome for the event you want to bet on. It can be done using various methods, such as statistical analysis, expert opinions, or intuition. However, you should know that estimating probabilities is not an exact science, and you might be wrong or overconfident in your predictions.
Once you have your estimated probabilities, you can plug them into the Kelly formula along with the odds offered by the sportsbook. Sportsbook software experts say it will give you the optimal fraction of your bankroll to bet on each outcome. For example, you want to bet between Team A and Team B on a basketball game. The sportsbook offers +110 odds for Team A and -110 for Team B. You estimate that Team A has a 55% chance of winning, and Team B has a 45% chance of losing. Using the Kelly formula, you get:
f* = ((2 x 0.55) – 0.45) / 2
f* = 0.275
You should bet 27.5% of your bankroll on Team A. So, for example, if your bankroll is $1000, you should bet $275 on Team A.
Kelly’s Criterion can be used to optimize your betting strategy and maximize your profits over the long run. However, it also comes with some challenges and limitations you should know before using it.
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