Kelly Criterion

The Kelly Criterion is employed by many sharp players to advantage bet vs. the market, lazy man’s gambling at its finest. Basically, it’s a staking system where risk adjusts based on perceived edge for a wager.

The actual formula is:

((Decimal Odds -1)*(Probability of Success)) – (Probability of Failure )/(Decimal Odds – 1)

The first step is to remove the juice or vig from the market price. For this example, Pinnacle Sports is used for definition of “The Market” and apply the Kelly Criterion to an advantage strategy aka, The Lazy Man’s Way.

Open a new spreadsheet, and enter the following:

Enter the following formulas in the following cells:

Cell C8 =1/B8

Cell C9 = 1/B9

Cell D8 = C8/C10

Cell D9 = C9/C10

Cell C10 = SUM(C8:C9)

Cell C11 = SUM(D8:D9)

Cell F8 = 1/D8

Cell F9 = 1/D9

Cell B14 (Kelly Criterion Excel Formula) = (((B13-1)*(1/B12))-1(1-(1/B12)))/(B13-1)

Once you’ve done that, add in a section for your bankroll:

Cell A16 = Bankroll

Cell A17 = Stake

Cell B16 = Enter in starting bankroll

Cell B17 = B16*B14

 

 

 

 

 

 

 

 

 

 

Hit enter and away you go, to adjust your spreadsheet to a half Kelly or quarter Kelly stake

Cell B18 = B17*0.5

Cell B19 = B17*.25

 

 

 

 

 

Now that the sheet is built, the steps are as follows:

• Remove the juice to find true odds
• Enter the true odds for the team you want to stake in to “True Odds” (Cell B12)
• Enter in the price you are able to bet the team at
• Hit Enter

And there you have it, now you can properly stake advantage plays. Calculating edge while ignoring The Market is a whole other kettle of worms, so start by doing against them.