top of page

Anton Hyberg  -  July 6

​

The Analytical Tipster – Part 2: The Kelly Criterion

Making Each Bet Count

 

Sports betting isn’t just about picking winners—it’s about allocating your bankroll intelligently when you believe you have an edge. This is where the Kelly Criterion becomes essential. Used by quantitative bettors and professional gamblers alike, the Kelly formula calculates the optimal stake size based on two variables: your perceived edge, and the odds offered. It’s not a strategy for maximizing short-term profits—it’s a method to maximize long-term bankroll growth while minimizing risk of ruin.

What Is the Kelly Criterion?

 

The Kelly Criterion helps determine the optimal fraction of your bankroll to bet on a given edge. For decimal odds, the formula is:

​

Kelly % = [(b × p) − q] / b

​

Where:

  • b = decimal odds – 1

  • p = your estimated probability of winning

  • q = 1 − p

​

Example:

​

You believe a team has a 60% chance of winning and the bookmaker offers odds of 2.20.

​

  • You estimate a team has a 60% chance of winning (p = 0.60)

  • The bookmaker offers odds of 2.20 (b = 1.20)

  • Kelly = (1.20 × 0.60 − 0.40) / 1.20 = 0.20 or 20%

 

As a result, if your bankroll is $1,000, you should bet $200!

​

  • However, Kelly Criterion assumes that the probability of winning is known, e.g when tossing a coin. In sports betting one can, however, never know the exact probability, even after the event is completed.  This is why even the best professional bettors usually apply a divider of 4-6. Ie. instead of 20% (example above) the bettor would bet 5%, many never place more than 3% of their bankroll on one bet.

Measuring Tipster Quality: Beyond ROI

 

While Return on Investment (ROI) is the most advertised metric, it doesn’t always reflect sustainable success. One lucky underdog bet can distort ROI even over a relatively long sample, especially if the odds and stakes vary heavily.  Kelly-based performance, on the other hand, gives deeper insight.

Metrics That Matter:

 

  • CLV (from Part 1): Indicates your ability to beat the market

  • Kelly Efficiency: Measures whether a tipster recommends stake sizes proportional to their edge (and the probability of winning)

  • Variance-Adjusted ROI: Looks at returns relative to volatility, akin to Sharpe ratio in finance

  • Edge Accuracy: Does the tipster consistently overestimate value? Kelly punishes overconfidence

​

Practical Tipster Evaluation with Kelly

 

If you’re tracking a tipster, ask:

​

  • Do they apply a logical staking model?

  • Do their stakes correlate with their implied edge?

  • Are they overbetting into marginal value bets?

  • Does the tipster chase losses, clearly overtbetting after a bad run?

​

 

Even a winning tipster can burn a bankroll with poor staking. Conversely, a moderate-win-rate tipster using the Kelly Criterion wisely may grow a bankroll more efficiently than a high-ROI, high-volatility counterpart. The Kelly Criterion turns sharp betting into smart bankroll growth. When combined with CLV tracking and realistic tipster evaluation, it becomes a key pillar of professional sports betting strategy.

bottom of page