The Ultimate Guide to Kelly Criterion Betting
The Kelly Criterion sounds intimidating, but it's actually a straightforward formula that answers one of betting's most important questions: "How much should I bet?" This beginner-friendly guide walks you through the math step-by-step with real examples.
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What You'll Learn
What is the Kelly Criterion?
The Kelly Criterion is a mathematical formula that tells you the optimal percentage of your bankroll to bet when you have an edge. It was developed by John Kelly at Bell Labs in 1956 for a completely different purpose—optimizing signal transmission—but gamblers and investors quickly realized its power.
The Kelly Criterion Does Two Things:
- Maximizes long-term growth: Bet too little and you leave money on the table. Bet too much and you risk going broke. Kelly finds the sweet spot.
- Protects your bankroll: Kelly never recommends betting your entire bankroll, ensuring you can always survive a losing streak.
Think of Kelly as your "Goldilocks" bet size—not too big, not too small, but just right for your edge.
The Kelly Formula (Made Simple)
Here's the Kelly Criterion formula. Don't worry—we'll break it down piece by piece:
The profit per dollar wagered. +150 odds = 2.50 decimal, so b = 1.50
Your estimated chance of winning, as a decimal. 45% = 0.45
Simply 1 - p. If p = 0.45, then q = 0.55
Converting American Odds to Decimal
Positive odds (+150): Decimal = (American / 100) + 1 = 2.50
Negative odds (-150): Decimal = (100 / |American|) + 1 = 1.67
Step-by-Step Example
Let's work through a real example. You're betting on an NFL underdog at +150 odds, and your model says they have a 45% chance to win.
Convert odds to decimal and find b
+150 American = 2.50 decimal
b = 2.50 - 1 = 1.50
Identify p and q
p = 0.45 (45% win probability)
q = 1 - 0.45 = 0.55
Plug into the formula
Kelly % = (b × p - q) / b
Kelly % = (1.50 × 0.45 - 0.55) / 1.50
Kelly % = (0.675 - 0.55) / 1.50
Kelly % = 0.125 / 1.50
Kelly % = 0.0833 = 8.33%
Calculate your bet
With a $1,000 bankroll:
$1,000 × 8.33% = $83.30 bet
Wait—8% is a LOT!
You're right. Full Kelly is aggressive, which is why most sharp bettors use fractional Kelly. Keep reading.
Why You Should Use Fractional Kelly
Full Kelly assumes your probability estimates are perfectly accurate. Spoiler: they're not. Nobody's are. Even a small error in your edge estimate can lead to massive overbetting.
Fractional Kelly Options
| Strategy | Bet Size | Example (8.33% Kelly) | Best For |
|---|---|---|---|
| Full Kelly | 100% | $83.30 | Not recommended |
| Half Kelly | 50% | $41.65 | Confident in models |
| Quarter Kelly ⭐ | 25% | $20.83 | Most bettors (recommended) |
| Eighth Kelly | 12.5% | $10.41 | Conservative / new bettors |
Full Kelly Problems
- ✗50%+ drawdowns are common
- ✗Psychologically brutal swings
- ✗Small edge errors = big losses
- ✗Assumes perfect probability estimates
Quarter Kelly Benefits
- Still captures 75% of long-term growth
- Much smoother bankroll curve
- Protects against estimation errors
- Easier to stick with long-term
Pro Tip: Start with quarter Kelly. You can always move to half Kelly once you've verified your edge over 500+ bets.
Practical Examples with Real Odds
Let's see Kelly in action with different scenarios you'll encounter. We'll use a $1,000 bankroll and quarter Kelly (the recommended approach).
Example 1: Small Edge on a Favorite
NFLBet: Chiefs -3 at -110
Your estimate: 54% win probability
Implied probability: 52.4%
b = 0.91 (decimal 1.91 - 1)
Kelly = (0.91 × 0.54 - 0.46) / 0.91
Kelly = 3.4%
Quarter Kelly: 0.85% = $8.50
Example 2: Big Edge on an Underdog
NBABet: Nuggets +200 (ML)
Your estimate: 40% win probability
Implied probability: 33.3%
b = 2.00 (decimal 3.00 - 1)
Kelly = (2.00 × 0.40 - 0.60) / 2.00
Kelly = 10%
Quarter Kelly: 2.5% = $25.00
Example 3: No Edge (Don't Bet!)
WarningBet: Cowboys -7 at -110
Your estimate: 52% win probability
Implied probability: 52.4%
b = 0.91
Kelly = (0.91 × 0.52 - 0.48) / 0.91
Kelly = -0.7% (NEGATIVE)
Don't bet! No edge.
Common Mistakes to Avoid
1. Overestimating Your Edge
The #1 Kelly killer. If you think you have a 5% edge but really have 2%, you're betting 2.5x more than you should. Always be conservative with probability estimates.
2. Using Full Kelly
Even professional bettors rarely use full Kelly. The variance is brutal and one bad run can devastate your bankroll. Stick to quarter or half Kelly.
3. Not Adjusting for Correlated Bets
If you bet on multiple outcomes that are correlated (same game, same player), you need to reduce your Kelly percentage. Treat correlated bets as one larger bet.
4. Ignoring Kelly When It Says "Don't Bet"
When Kelly returns zero or negative, that's the math telling you there's no edge. Don't override it because you "feel good" about a pick.
5. Forgetting to Update Your Bankroll
Kelly is based on your current bankroll. After a big win, your bet sizes should increase. After losses, they should decrease. Recalculate regularly.
When NOT to Use Kelly Criterion
Kelly isn't always the answer. Here's when to skip it:
Skip Kelly When...
- • You don't have a verified edge
- • You're betting for fun/entertainment
- • You can't handle big swings emotionally
- • Your probability estimates are guesses
- • You're betting parlays (use flat betting)
Use Kelly When...
- • You have a model/system with proven edge
- • You're betting for long-term profit
- • You can estimate probabilities accurately
- • You understand and accept variance
- • You're disciplined enough to follow it
Using Our Kelly Criterion Calculator
Skip the math and use our free Kelly Criterion Calculator. Here's how:
Enter Your Odds
Input American odds (+150, -110, etc.) or decimal odds
Enter Your Win Probability
Your estimated true probability of winning (be honest!)
Enter Your Bankroll
Your current total betting bankroll
Choose Your Kelly Fraction
Select quarter, half, or full Kelly (we recommend quarter)
Get Your Optimal Bet Size
The calculator shows exactly how much to bet
Related Bankroll Tools
Kelly Criterion Calculator
Calculate your optimal bet size based on edge and odds
Expected Value Calculator
Find your edge on any bet before applying Kelly
Unit Size Calculator
Determine your base unit size for fractional Kelly
Risk of Ruin Calculator
See your probability of going broke with different strategies
Bankroll Growth Projector
Project long-term growth using Kelly staking
Variance Simulator
Visualize the swings you'll experience with Kelly betting
Key Takeaways
- Kelly Criterion calculates the optimal bet size based on your edge and odds
- Always use fractional Kelly (quarter or half)—never full Kelly
- Kelly only works if you have a verified edge—don't guess your probabilities
- When Kelly returns zero or negative, don't bet—there's no edge
- Use our Kelly Calculator to do the math for you
Responsible Gambling
Sports betting should be fun, not a financial burden. Only bet what you can afford to lose. If gambling stops being enjoyable, please seek help.
National Problem Gambling Helpline: 1-800-522-4700