Having a bankroll is of vital importance. It keeps your betting funds separate from your personal funds and allows you to make rational decisions based on probability and sound judgement without having a worry over losing your rent money.
Managing that bankroll is also of utmost importance. If you have a set amount available you want that to work for you for many years, you do not want it depleted as that will limit your future earning potential.
The Kelly Criterion is one method of calculating how much of your bankroll you should use for any particular bet (if it can’t be hedged – such as the value mugs that are posted up on our forum thread dedicated to the subject).
It is commonly believed that the Kelly Criterion can be a bit bullish when it comes to real life situations. Any calculation needs to consider your own personal position as well as a degree of return optimisation.
As a rough and ready rule we like to limit ourselves to 0.5% of our bankroll on any value mug or casino offer. Less than this if the odds are long. It is sensible to start off even lower than this as you can always increase your tolerance later. If you start of too high and hit a losing streak it is very difficult to go the other way! Have a play around with our Staking with Kelly Calculator if you want to maximise your returns, 1/4 Kelly is a popular option where you have a designated boosts bankroll.
If you are just starting off, grow your bankroll using the sports sign up offers and risk free casino offers. This should give you enough to start taking on low risk casino offers and some low risk sports offers to grow your bankroll further. Over time you will become more comfortable with the various techniques involved and you will have grown your bankroll to a level that allows you to have a go at a few value mugs and some more risky casino offers. Just make sure you are always taking value and you are taking good care of your bankroll. If you do this, you will find your bankroll will look after you!
One more thought on Kelly as it relates to the business of risk management. A 2% edge is meaningful – entire casino empires have been built on a similar edge. For example, the standard, 38-slot roulette wheel offers the house an edge of 2.6% on a bet that pays even money. In this case, Kelly suggests the optimal bet size is not 4% but 5.2% of bankroll!
The Wynn Resorts Corporation is worth more than $9b based on its stock market capitalization; MGM Resorts International is worth in excess of $16b. Ask yourself this: Would Steve Wynn ever let someone come into his casino, walk up to a roulette wheel, and bet $500 million on black? Could Warren Buffet place a nearly $1b roulette bet in an MGM-owned casino? No. And it’s the same reason you, if you are seriously betting on sports as an investment for yourself or others, should never rely on the Kelly formula to determine your bet sizes.
Ed Thorp thinks this was a great experiment so it’s probably worth reading the full report! It’s only 8 pages long including references, graphs and pictures.
Try the experiment for yourself. You start with $25 and should be able to manage your bankroll in a way that pretty much guarantees you end up with the maximum payout (it is capped at a certain value). Heads wins 60% of the time and tails 40% of the time (on average).