Bankroll Management in Sports Betting

Most people mistakingly think that when they are betting on formula one, or any other sporting event for that matter, the most important thing is to be able to pick winners. This is off course an important factor in being a winner in betting sports, but there is one factor that most ignore and that I think is even more of a factor in the vast amount of losers in sports betting, and that is a lack of proper bankroll management when they are betting on sports.

Bankroll management is a balancing act where you want to earn the most, while at the same time risk the least. Doing this requires that people know their expected winnings on each wager and that can be quite hard for beginning bettors to do and to those we recommend doing something called flat betting:

Flat Betting

Flat betting is just the act of betting a flat amount each time you bet, and optimally, this should be a percentage of your bankroll. You can also decide to flat bet an specific amount, however this will not be optimal. The percentage you want to bet on each outcome should hinge on how much you like risk. Cause believe it or not, nothing is sure when it comes to sports. You can encounter long losing streaks sometimes, and even the best bankroll management systems will be troubled to keep afloat at these times. Betting 2% of your bankroll is considered the norm, but if you want to try and grow it more aggressively, you can up this to 5% or even higher if you prefer, but this is only recommended if you can be very strict in keeping to your betting rules.

So this is the conservative method. It is pretty straight forward, doesn’t require much thought and is simple to use. However, this method of betting is not optimal (although it is more than enough for most bettors) and will not grow your bankroll optimally. For those of you who are more advanced bettors, we recommend you use the Kelly Criterion in deciding how much to bet on an event.

Kelly Criterion

The Kelly Criterion has been made famous as a money management system by the famous Edward Thorpe who used it to beat Vegas in blackjack, sports betting and then later tackled Wall Street. This system is also very simple, but in the wrong hands can create disastrous results. The formula itself is simple:

f = [(b x p) – q] / [b]

f = fraction of the current bankroll you will wager

b = odds received on the wager

p = probability of winning

q = probability of loss (q = 1-p)

To be able to figure out how much to optimally bet, you need to calculate the probability that your bet will win (and from this you will know the probability of a loss) and you already know the odds presented to you. Let’s take Sebastian Vettel winning over Fernando Alonso in a given F1 race. If you think Vettel has a 55% chance of placing ahead of Alonso and you are given 1-to-1 odds (which is 2.00 in decimal odds or +100 in american odds), the amount you would wager would be:

f = [(1 x 0.55) – 0.45] / [1] = 0.10 = 10%

The Kelly Criterion suggests you should bet a staggering 10%(!) on this event. As you can see, this betting system is very aggressive and requires the user to very strict in its betting regiment. The Kelly Criterion is the fastest way to reach a set goal of wealth, but it also carries with it a lot of risk and should only be used by bettors who know what they are doing. Also, it is very common for people who are risk avers or who are unsure if their calculations are hundred percent correct to use a fractional Kelly. This means betting half or even a quart of what Kelly suggests. This allows for some room of error and less risk.

Now I suggest those who are new to sports betting should start betting using flat betting, and then read up on Kelly as you get more comfortable with betting. For more information on the Kelly Criterion, I recommend the excellent series by Ganchrow over at SBRforum.com:

A quantitative introduction to the Kelly criterion – Part I — Expected Value vs Expected Growth
A quantitative introduction to the Kelly criterion – Part II — Maximizing Expected Growth