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The Kelly Criterion

What exactly is the Kelly Criterion?

The Kelly Criterion enables you to calculate your optimum stake according to the betting odds and your forecast. Betting any more would involve a pointless risk and betting any less would involve lower returns.

The optimum stake is expressed as a percentage of the total sum that you allocate to sports betting.

How do I calculate my stakes with the Kelly Criterion?

To calculate your stake, you need to know the bookmaker's odds (O) and to have accurately calculated the probability of a successful outcome for your prediction (P). Therefore, the formula is as follows:

Calculation of your betting portfolio as a % = (O * P-1) / (O-1)

Example of a Kelly Criterion calculation

Your betting portfolio is 1000 euros. The following odds are offered:

You're using a reliable statistical model and estimate that Federer has a 50% chance of winning the match. The odds of 2.1 are overestimated, making this a value bet.

The Kelly criterion allows you to calculate the optimum stake:

Kelly % = (2.1 * 50%-1) / (2.1-1) = 4.54%

Therefore, you should stake 4.54% of your betting portfolio, i.e. 45.4 euros (4.54% x 1000 euros).

Note that this system will only make you a profit if you calculate the probability more accurately than the bookmaker! If your estimates are wrong, the strategy could quickly accumulate your losses.