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General Sports Betting Articles
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Before betting sports you should have a money management plan in place that will dictate how you will wager money to best satisfy your goals. Every bettor has different goals, so this money management guide is tailored to the bettor with long term bankroll growth in mind.
The Purpose of Money Management
At its basic level, a money management plan provides a bettor with a guideline for wagering money so that their personal betting goals are met. These personal betting goals can be anything from betting for short term entertainment value to betting for long term growth.
If you are betting for entertainment value then you should consider betting whatever amount provides you with this happiness, as no money management method will keep you from losing money. As such, you should only bet what you are comfortable losing.
Determining the Size of Your Sports Betting Bankroll
Before you can determine the amount of money you should risk on a sports bet you must first determine the size of your bankroll. If you're not familiar with the term bankroll, it's simply the amount of money you have available to bet on sports.
Before coming up with an amount of money to allocate as your bankroll, you should first ask yourself the following question:
"If I were to throw a $1,000 stack of one hundred dollar bills into a fire, how many of these stacks would I throw in before I forced myself to stop?"
The dollar amount that truthfully answers this question is the dollar amount you should use for your bankroll. I know this might sound a bit extreme, but to properly calculate your wager size you must be willing to lose your entire bankroll.
If you fail to have this mindset and simply stop betting after you lose a set amount of your bankroll then you are dooming yourself to failure before ever placing your first bet, as you've been overbetting from the start.
Calculating the Optimal Wager Size
To calculate your optimal wager size, I suggest you use the Kelly criterion. There is a strong mathematical foundation for the Kelly criterion, and it is perfect for bettors whose goal is to grow their bankroll at its maximum rate. As such, if you have a low risk tolerance, or if your goal isn't to grow your bankroll at its maximum rate, then the Kelly criterion is not for you.
Also, it is worth emphasizing that the Kelly criterion maximizes your long term bankroll growth, so while other methods may prove to provide better gains over the short term, the Kelly criterion is your best bet if your goal is to have the best long term growth.
For more background about the Kelly criterion see the Kelly criterion Wikipedia page. For a short term alternative to the Kelly criterion for betting point spreads and totals then checkout Dr. Bob's money management guide.
Now that you understand the purpose of the Kelly criterion, the formula you can use to calculate your optimal wager size is
Where Pr(Win) denotes the probability of winning and DecimalOdds denotes the odds in decimal format.
For example: You currently have a $10,000 bankroll and you find a bet that you figure to win 55% of the time with posted odds of -110.
To calculate the optimal bet percentage, perform the following calculations:
With an optimal bet percentage of 5.5% your optimal wager is $550, i.e.,
Notes:
To convert odds into decimal format see the Odds Converter,
and for more information about odds formats see the Sports Betting Basics article.
For cases in which there is a probability of a tie,
Also, for an in-depth mathematical understanding of the Kelly criterion I strongly encourage you read the following posts at SBRForum: Expected Value vs Expected Growth and Maximizing Expected Growth.
You should also note that calculating the optimal wager size changes when you wish to bet simultaneous wagers, so for more on this topic checkout the Simultaneous-bet Kelly staking post at SBRForum.
Adjusting Your Optimal Bet Percentage
By using the formula above you will calculate what is known as a full Kelly stake size. This is your optimal wager size, but for betting sports you will want to use a fraction of this percentage. There are two common reasons for using a fraction of the full Kelly stake size as your actual wager size.
The first reason is that your probability of winning is an approximation when compared to other games of chance. When flipping a fair coin or rolling a fair die the odds of obtaining a specific result can be calculated explicitly, where as when betting sports the odds of a team winning aren't as clear cut. As such, this will help to keep you from overbetting when the true odds of an event aren't as high as you might calculate.
The second reason for betting a fraction of full Kelly is to reduce volatility. While betting a fraction of full Kelly will reduce your growth rate, you will cut back on volatility without sacrificing all of your profits--a win/win for most investors.
The two most common ways of adjusting full Kelly are known as half Kelly and quarter Kelly. As the names suggest, half Kelly is full Kelly divided by 2, and quarter Kelly is full Kelly divided by 4. Which variation you choose is up to you, but pick quarter Kelly over half Kelly if you feel your probability of winning is overestimated or if you wish to further reduce volatility.
Summary
The Kelly criterion isn't for everyone, but if you have long term growth in mind then you can't go wrong with this form of logarithmic bet sizing.
To calculate the optimal wager size without having to do the math checkout the Kelly Criterion Calculator.
- Ryan J. Parker | Ryan's sports betting blog
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