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What is the Kelly criterion staking plan?

The Kelly criterion is a staking plan that uses a mathematical formula to seek out opportunities for profitable bets.

The basic idea is to find bets where there is a bigger difference between probability and the odds on offer. This gives you the opportunity to exploit that discrepancy and find profitable betting opportunities. The Kelly criterion is designed to maximise your profits and minimise losses, making it a popular approach amongst bettors, and one you should consider if you’re serious about gambling for profit.

Kelly criterion mathematical formula

The formula calculates the ideal sum you should stake on any bet, helping minimise your risk and maximise your profits in the long term.

The formula is:

(bp – q)/b = f

  • b is your potential winnings, in decimal odds b is simply the odds minus one
  • p is the probability of the bet winning
  • q is the probability of the bet losing (that is 1 – p)
  • f is the suggested percentage or fraction of your bankroll you should stake

Example of Kelly criterion betting

Let’s say you want to bet $10 on a horse at 3.00.

  • b = your potential winnings is $20 (the odds minus one)
  • p = probability of it winning is 40% 0.4
  • q = the probability of losing is 60% or .6

Using the formula, we find that:

((2×0.40) -.60)/2 = 0.1

This means you should bet 10% of your betting pool on this bet. This bet has positive expected value, meaning that the probability of winning is higher than the probability of the odds.

Pro Tip:

Using the Kelly criterion, you can apply the formula and calculate what not to bet on by avoiding bets that generate a negative result when you apply the formula.

Pros and cons of the Kelly criterion:

Pros Cons
Widely considered the best staking plan You need to do the legwork of checking odds and probability to find the best offers
Calculates each bet as a percentage of your total betting pool Calculates each bet as a percentage of your total betting pool
Greater chance for success It can be difficult to estimate probability when you are not deeply familiar with a sport
Chance for you to exploit your knowledge of a sport by spotting gaps in probability and odds You don’t always know the true probability in sports betting, probability is dependent on many factors and losses still occur
Helps you identify when not to bet You are exposed to risk if the formula suggests you bet high stakes such as 10% of your betting pool (you can always halve the stake to minimise this risk)

Tips for using the Kelly criterion

  • Spend time looking at the odds and probability to find opportunities
  • Use the Kelly criterion calculator to calculate your stake
  • Start small, halve the suggested stake if necessary
  • Track your winnings in a tracking calculator