Pool, in response to your post...here you go. Pretty basic stuff in my opinion.
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.
The Kelly Criterion in Action
| Bankroll % |
| Estimated Winning Percentage |
52.5% |
.25% |
| 53.0% |
1.30% |
| 53.5% |
2.35% |
| 54.0% |
3.40% |
| 54.5% |
4.45% |
| 55.0% |
5.50% |
| 55.5% |
6.55% |
| 56.0% |
7.60% |
| 56.5% |
8.65% |
| 57.0% |
9.70% |
| 57.5% |
10.75% |
| 58.0% |
11.80% |
| 58.5% |
12.85% |
| 59.0% |
13.90% |
| 59.5% |
14.95% |
| 60.0% |
16.00% |
Problem No. 1 With the Kelly Criterion
The Kelly Criterion isn?t without its flaws, however, and is seldom used in its original form. Instead, a variation of the method is used by most successful sports bettors.
The first problem with the system is that most sports bettors tend to overestimate their expected winning percentage and therefore would be betting more than they should on each game, which lowers the probabilities of having a success season.
While some bettors may scoff at the 56% figure used in as an example earlier, professional bettors will be the first to tell you there?s nothing wrong with that percentage at all. Such a percentage will lead to a nice profit over time.
Many bettors assume they are going to achieve the magical figure of 60% winners, if not higher, when heading into a new season. While such a percentage may be achieved over a short period of time, it?s nearly impossible to maintain over a long stretch.
Professional bettor Steve Fezzik describes the 60% fallacy in Larry Grossman?s book, You Can Bet on It Fezzik states if you begin with a $1,000 bankroll and wager 10% of your money on one game a day, while laying -110 odds, while maintaining a 60% winning ratio, after 2,000 wagers your initial $1,000 would be a cool $550 billion. Yes, billion. Something to remember the next time you see a sports tout claiming to hit 65% over the last 10 years.
Problem No. 2 With the Kelly Criterion
The biggest drawback to the Kelly Criterion is since it was devised for horse racing, it is equipped to handle one wager at a given time. With Kelly?s system a wager would be made on a race and the results would be known before placing another bet. That would give the bettor time to recalculate his bankroll before placing the bet.
That is seldom the case in sports betting, where it isn?t unusual to have a number of wagers taking place at the same time. Anybody using the basic Kelly system could easily have their entire bankroll in play on any given day, which is one of the quickest methods of going broke.
There are generally two types of sports bettors. There are those who are very selective and may only wager on several games per day or there are those who use what I call the ?Wal-Mart? approach and bet many games per day with the hope of grinding out a small profit. Over time, they hope those small profits add up to healthy financial returns.
Obviously a bettor making three bets on a Saturday can afford to play a larger percentage of their bankroll on each play than a person making 15 bets, so the ultimate money management system will have to factor in the number of games wagered on when deciding the ideal bet size.
Professional sports bettor Bob McCune constantly stated that he wagered 2% of his bankroll on each play, but he was the prototypical Wal-Mart bettor and would have numerous plays, as long as he thought he had an advantage over the bookmaker.
The late Mike Lee, who for years ran a very successful sports serve and was considered one of the top technical handicappers of his day, was more selective in the number of games he would release to his clients, and therefore would recommend wagering 8% of one?s bankroll of his best bets, and a slightly lower percentage on other games.
The Ultimate Money Management System
In creating the ideal money management system, it became rather obvious that it would have to have a safeguard for the Wal-Mart bettors, but at the same time, not hamper the bettor who is more comfortable making two or three bets per day by having them wager too little on each game to reach maximum profits.
We will use 4% of our bankroll as our base figure, but then subtract .1% from our bet size for every additional wager we make after our first bet of the day. (If we wager on just one game for the day, our bet size will be 4% of our bankroll.) For example, if we are going to make five bets for the day, our bet size would be 3.6% of our bankroll (4% - .4%) and if we are going to make 11 bets on the day our wagers would become 3% of our bankroll on each play (4% - 1%).
It?s important to stress when using this method all of our wagers for the day will be the same size, as we only recalculate our wagering amount once per day. Using a calculator, this can be done in a matter of seconds, so that we can spend more time handicapping games or shopping for the best lines.
What we are essentially doing is using the half-Kelly method, but adding an element that takes the number of games bet into consideration.
Those who have access to an online sports book will have no problem following the method exactly as described, as online books are just as willing to accept a bet for $106.45 as they are to accept a $110 wager, while those using private bookies are likely to have to make some minor adjustments to their bet size so that it is an even amount.
Using this money management method doesn?t assure a sports bettor of huge riches, but it is the first step in having a profitable season.
"It's not about the teams playing but when they're playing each other" - Mike Seba, LVSC
"Life is like a box of chocolates, you never know what you're gonna get" - Forrest Gump