What is the Kelly Calculator and how can it help you when betting?
In a recent interview I conducted one of the tools that George recommends to people is the Kelly Calculator, I had never heard of this tool before so I decided to do some research.
What is the Kelly Calculator?
When we talk about the Kelly Calculator we are talking about a tool that helps you to work out the optimum amount of money you should place on a series of bets.
The calculator takes into account several key pieces of information;
- Your Bankroll
- The Odds for the bet you want to make
- The probability the bet will land
- Any commission or money you will have to pay for the bet
And using a formula best known as the Kelly Criterion it will suggest the optimal amount of money to be placed.
Why is it called the Kelly Calculator?
Taken from Wikipedia
The person who first came up with this formula was a scientist called John Larry Kelly, Jr.
Naturally calling it the John Larry Kelly Jr Criterion is a bit long winded so it was known as the Kelly Criterion, since the calculator uses this formula it makes sense to call the calculator the Kelly Calculator.
Kelly Calculator, Kelly Criterion, Kelly Formula? Too many Kellys!
Don’t worry, all these terms mean the same thing, it has also been called the Kelly Strategy and the Kelly Bet before, if the thing you are reading about refers to ‘Kelly’ then it probably means this calculation!
Why is the Kelly Calculator important for football betting?
The Kelly Criterion and therefore the Kelly Calculator has been proven to be effective and have been used not only in betting, some big names in investment for example Warren Buffet have been claimed to have used it.
Football betting is a great use case for the Kelly Calculator because you either win the bet or you don’t, there are ways to apply the Kelly Calculator to more complex bets but the majority of tools cover the main simple betting use case.
Having a tool which helps you manage your bankroll in a useful way is always going to be important, following your gut might be OK for short term bets but if you aren’t keeping tabs on where your bankroll is going then you are going to have a hard time making money in the long term.
The sad thing about the Kelly Calculator
When researching this article one thing I found out that was pretty sad was that Kelly himself never actually used his own formula to help him make any money. The following is from a business week article on him;
Kelly died of a brain hemorrhage on a Manhattan sidewalk at age 41, in 1965, apparently never having used his own criterion to make money.
Considering the amount of betting folk today who swear by his methods it seems like a great shame!
Critics of the Kelly Calculator
Not everyone is a fan of the Kelly Calculator, some people have said that the only way this makes sense is if you continually reinvest any money that you have won. Personally I don’t agree with this one, if you take into account a commission you can easily work that into a bet so that there is always a certain amount of money you hold back and keep in your bankroll.
It has also been said that you need to bet over a long distance in order to see any real return on this, of course this makes a lot of sense since you are essentially playing with probability which sometimes only shows itself over a long period of time (think about tossing a coin, it is 50/50 but you could get 10 heads in a row)
Is the Kelly Calculator for you?
So, a question you might have is, is the Kelly Calculator for you – well I can’t answer that definitively unfortunately. I would suggest that if you bet more than the odd time and want to actually try and make some money football betting then yes, you should invest the time to understand and use something like the Kelly Calculator. If you only have a flutter every now and then I don’t think it is going to be worth your while going through this extra step each time.
Examples of the Kelly Calculator
There are plenty of examples to be found on the web. Looking at the maths behind it seems complicated at first (just one look at the mathematical proof will show you that!) but functionally it is easy to make.
Do you use the Kelly Calculator?
If you use the Kelly Calculator I would love to know what your thoughts are on it. Let us know in the comments!