BASIC SPORTS BETTING THEORY - RESPONSE TO POOL'S POST

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.

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.

Damn, I just love thinking about money.  I have an illness...

Dear Evan, whoever wrote this article has made a critical error in the interpretation of John Larry Kelly, Jr.'s paper. Let me explain.

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.

The probability of winning is not the winning percentage of the bettor converted to probability, but the true odds of winning an event converted to probability. Win% and true odds are two completely different things. This is a crucial error in the article and cannot be ignored.

Since in sports betting it is not possible to determine exactly the true odds of an event, unlike we can do in texas poker hold'em or on blackjack, it is very difficult to apply correctly or optimally the Kelly Criterion.

The Kelly Criterion assumes you know the probability of the result of an event. We can converted the odds into its probability and vice versa, but what we are after here is the 'true probability' (TRUE ODDS) of a team to win a match. Either on the moneyline or on the pointspread.

Yet, the Kelly Criterion 1/4 or its 25% (0.25) variation, like it's also known, when properly used in the hands of a winning bettor, can provide better results than using simple fixed stakes.

Just my informed two cents.

Dear Dunadan, I'm sorry that the article did not fully suit your desires.  Pool had a question and I found a quick article off the internet that would reasonably answer his question.  I also posted something in his thread about money management as well.

On a side note, you seem pretty eager to criticize or find holes in things that I post...  However, I notice that you never post any plays?  It's pretty easy to always be right if you never post any selections and jump in the game yourself.  Now maybe you used to post plays before I started here, but I haven't seen any.  Maybe you should step up and put your money where your mouth is...literally.

Evan....posting plays only and selling plays with posted freebies are two different animals, you might want to check yourself a bit before calling someone out that doesn't post plays......how many plays would you post if you weren't selling?

Just because Dun has a different perspective from the article you posted for "a quick internet search" shouldn't cause you to lash out at him and demand a challenge. 

Besides....you have Apathy-"next" for that. lol

First of all, he made a point to make it seem like he's talking down to me by saying Dear Evan...that's BS because I don't go into his threads and talk down to him.  Second, I'm all for anyone disagreeing with me as long as it's done constructively, not the way he did it, and has done it.  Third, he has seemed to make it a point to disagree with everything that I post, basically he's made it known that he's trying to discredit my posts.  Fourth, I wasn't "challenging" him, and I'm not going to challenge everyone who disagrees with me because that's bush league.  All I was saying is that he never posts any plays, so he's never going to be wrong.  If he's so great, why doesn't he post EVEN ONE PLAY?  It doesn't take that long, a few seconds, to post even a few good plays of his a year.  Fifth, I wasn't lashing out at him, because I would probably get put on moderation if I would have really lashed out at him.

Evan Altemus

First of all, he made a point to make it seem like he's talking down to me by saying Dear Evan

Note to self, dont say "Dear Evan"

Evan Altemus

...that's BS because I don't go into his threads and talk down to him. 

Yes you do!

Evan Altemus

Second, I'm all for anyone disagreeing with me

No youre not... every time somebody disagrees with you, your face turns really red in your picture and I sometimes see steam coming out of your ears...

Evan Altemus

as long as it's done constructively, not the way he did it, and has done it.  Third, he has seemed to make it a point to disagree with everything that I post,

In his defense you are wrong 46& of the time...

Evan Altemus

basically he's made it known that he's trying to discredit my posts.  Fourth, I wasn't "challenging" him,

Come on Evan... just call im out bro... tell us how you really feel!

Evan Altemus

and I'm not going to challenge everyone who disagrees with me because that's bush league.

BOOOOOOOOO - Call people out... speak your mind, thats what this forum is all about... No more Mr nice guy

Evan Altemus

All I was saying is that he never posts any plays, so he's never going to be wrong.

He posted a system at the beginning of MLB season... Probably won more units than you did the first 2 weeks of MLB... Or maybe higher ROI 

Evan Altemus

If he's so great, why doesn't he post EVEN ONE PLAY?  It doesn't take that long, a few seconds, to post even a few good plays of his a year.

The year isnt over yet... stay tuned!

Evan Altemus

Fifth, I wasn't lashing out at him, because I would probably get put on moderation if I would have really lashed out at him.

Again, youre too soft... you should let people have it when they deserve it... didnt you learn anything from me?

Apathyxnext

Evan Altemus

First of all, he made a point to make it seem like he's talking down to me by saying Dear Evan

 

Note to self, dont say "Dear Evan"

Evan Altemus

...that's BS because I don't go into his threads and talk down to him. 

Yes you do!

Evan Altemus

Second, I'm all for anyone disagreeing with me

No youre not... every time somebody disagrees with you, your face turns really red in your picture and I sometimes see steam coming out of your ears...

Evan Altemus

as long as it's done constructively, not the way he did it, and has done it.  Third, he has seemed to make it a point to disagree with everything that I post,

In his defense you are wrong 46& of the time...

Evan Altemus

basically he's made it known that he's trying to discredit my posts.  Fourth, I wasn't "challenging" him,

Come on Evan... just call im out bro... tell us how you really feel!

Evan Altemus

and I'm not going to challenge everyone who disagrees with me because that's bush league.

BOOOOOOOOO - Call people out... speak your mind, thats what this forum is all about... No more Mr nice guy

Evan Altemus

All I was saying is that he never posts any plays, so he's never going to be wrong.

He posted a system at the beginning of MLB season... Probably won more units than you did the first 2 weeks of MLB... Or maybe higher ROI 

Evan Altemus

If he's so great, why doesn't he post EVEN ONE PLAY?  It doesn't take that long, a few seconds, to post even a few good plays of his a year.

The year isnt over yet... stay tuned!

Evan Altemus

Fifth, I wasn't lashing out at him, because I would probably get put on moderation if I would have really lashed out at him.

Again, youre too soft... you should let people have it when they deserve it... didnt you learn anything from me?

Apathy you have way too much free time

Haha, Apathy that was too fcking funny.  I busted out laughing when I saw your post.  I think BK might be right though, you have too much free time, haha.  And by the way, steam doesn't come out of my ears, it comes out of my eyes and the top of my head...come on get it right.  No doubt that guy really pisses me off sometimes.  I try to learn from you, but I'm too nice right now...give me some time to fully be able to call people out!!!