One of the first things a professional sports bettor does before she hits the sportsbook is to derive a method of money management. Not doing so can quickly lead to long losing streaks, depleted bankrolls and worse.

Setting Up a Bankroll

The first step is to establish a separate betting fund, commonly referred to as a bankroll. This is a stash set aside from your living expenses, which won’t impact your life or the lives of your family if it disappears. The reason for this is to keep your gambling funds separated by a firewall from the rest of your cash, so that you don’t have the ability to get yourself in trouble without jumping through a few hoops. Make sure to choose an amount you can afford and still take the kids out for ice cream or, if you’re a bachelor, go out on the town every once in a while.

Methods of Betting

Once you have set aside a bankroll, the question then becomes how much to risk on each bet. There are two basic ways that most gamblers bet. One is to take just a few bets per day or other interval; study them carefully and bet a fairly large amount of money. This provides greater payoffs at the risk of a quick end to your betting. The other is to make several small bets, hoping that you win enough of them to make a profit. Most gamblers today use the second method combined with a specific formula to ensure they bet within their means.

This formula is known as the Kelly Criterion. It was originally developed in 1956 by Edward Kelly, a physicist working at AT&T’s Bell Labs, for betting on horse races. This method attempts to pin down the exact bankroll percentage one should use for each bet, based on the odds of the bet and the probability of winning. Don’t worry; you don’t need to be a physicist to understand it.

The Kelly Criterion

Here is the formula itself: odds* prob of winning – prob of losing / odds

Let’s break this down. First, multiply the odds of the event in question by the probability of winning the bet. Then subtract the probability of losing. Finally, divide that result by the odds to get the percentage of your bankroll you should wager (as a decimal.) If you’re making multiple bets, subtract .1% from the result for each additional game upon which you wager.

Of course, the only way you know for certain your probability of winning or losing is to analyze your success over time, which would require you to bet for a substantial period of time before using this method. Alternatively, you can make a guess as to the probability of the team in question winning a game. Not much different than the odds, but it should give you a decent number to use with this formula.

Typically, the percentage should be in the mid-single digits, somewhere between 5 and 7%. That allows you to bet on multiple events without wiping out your bankroll. As you gain more experience, you can better assess your probability of winning and use the Kelly Criterion to maximum effect.

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