Money Management
"Money management
is one of the hardest disciplines. Smart punters, like smart
jockeys, pace themselves".
Money
Management is a crucial skill that punters that wish to
win in the long term need to grasp. It’s one thing to place bets when well informed, it’s another
thing to determine how much to bet in order to make a significant
profit whilst not breaking the bank. There are many different
methods of money management in betting and I will describe
them below as well as their advantages and disadvantages.
 Martingdale System
Better
known as the “double or nothing” system, this method will
see the punter double their bet after a losing bet in order
to eliminate any losses previously encountered. Punters
using this method are doomed for failure. The Martingdale
method has no mathematical backing and whilst you will have
long successful runs, all it takes is one bad run and you’ve
lost everything that you had. It doesn’t matter how good
advice you may be getting, you will always loose with the
“double or nothing” system.
 Percentage of your bank
Linked
to the Kelly Criteria (see method 5), many punters like
to use a percentage of their bank in order to determine
how much to bet. Mathematically it is impossible to go bust
(lose all your bank) with this method, but it is realistically possible.
One of the down sides to this method can be seen using the
following example. If one was to bet on 2 games at odds
of $2.00 and they bet 20% of their bank (say $1,000) on
each. If both games win then they will win $440, if they
lose they will lose $360 and if they win one and lose one
they will lose $40. Hence this means that using this
method if they win as much as they lose they will come out
behind. Hence this method has been known to do well if the
person is constantly backing favourites. If you like to
bet the underdog a lot then stay well clear of this method
as you will not win in the long term.
 Fixed Amount Betting
The
most simple and commonly used method is just fixed amounts,
simply betting $100 on each bet. Fixed Betting has a mathematical
chance of going bust but keeping the fixed amount to a small
percentage of your overall bank will hopefully fix this.
However there are many downsides to fixed betting. Firstly
according to fixed amount betting you are required to bet
the same amount on a 100:1 shot as you are a 2/5 favourite.
Similarly if your bank doubles or even triples you will
find yourself still betting the same small amount that you
might have been doing 10 years ago. Fixed amount betting
is generally used by people who do not understand the mathematical
principles of gambling and whilst the method is successful,
there are many other methods out there that outweigh it.
 Inverse Odds Betting
Inverse
odds betting is quite a successful method of betting in
that it is similar to Fixed Amount Betting however it takes
into consideration the odds. For example, one might always
like to win $500 with each bet. So for that 100:1 shot they
will bet $5, and for that 2/5 ($1.40) favourite they will
bet 500 / (1.40 – 1) = $1,250. However the example just
given highlights this problem, for a $1.10 favourite they
should bet $5,000 and for a $1.05 favourite they should
bet $10,000. The Inverse Odds Betting method does not take
into consideration your bank balance size, and all it takes
is one of these favourite bets not to come through and you’ve
lost your bank. Certain limitations can be used to stop
betting so wildly like adding that you only bet, say, 10%
of your bank, but this will mean that you’re not getting
the $500 that you so wished for at the start.
 Kelly Criteria
The
final and mathematically proven best method is the Kelly
Criteria. Made in 1956, originally for information rates,
the Kelly criteria has been adapted
to sports betting in a large way. The original formulas
have also been simplified. The Kelly criteria
has been mathematically proven to make the most amount
of money but also has a large risk. The advantages is that it takes not only into consideration the
probability of the player/team to win, but also the overlay
(advantage) that you have. Hence it sees you as betting
more on favourites and less on underdogs (like the Inverse
Odds Betting), and it sees you bet more when you have a
greater advantage over the bookmakers and less when you
don’t have as large an advantage. The downside is that one
has to calculate the probability of an event happening.
However the good news is that at www.sportpunter.com we do that for you!
Firstly
let’s explain what an overlay is. An overlay is the percentage
advantage that one has over the bookmaker. For example if
one was to have a 10% overlay, this is would mean that their
Return on Investment (ROI) or %profit on turnover should
equal 10%. The overlay is calculated by the following formula:
Overlay
= (probability * bookies price) – 1
Bets should be made only
on positive overlays.
There
have been many branches of the Kelly Criteria in recent
times, but to start off with we will look at the original
Kelly Criteria which of recent has been called “full Kelly”
5a.
Full Kelly
Bet
Amount = Overlay / (bookies price – 1)
The
Fully Kelly method is rarely used by punters despite being
mathematically proven to be the most successful. The reason
is because it will take you on a rollercoaster ride. At
times the Full Kelly method will suggest to
bet more than 50% of your bank balance, which is
quite unrealistic. The Full Kelly Method is extremely risky
and one using it will see large bank balances chopped down
to 1/10 of what it used to be on occasions. However
when winning it will also see bank balances skyrocket (only
to be chopped down later on). Because of it’s
rollercoaster nature, many people have scorned the Kelly
criteria and have been persuaded not to use it. However
that doesn’t mean that the Kelly method is useless; many
people have adopted the half Kelly or quarter Kelly methods
to great success.
5b.
Factional Kelly.
The
Fractional Kelly is simply to bet a certain fraction of
what the full Kelly suggests. Half Kelly and quarter Kelly
are two commonly used methods where one simply bets half
or a quarter of what the full Kelly system suggests. What
this results in is a much smoother ride in that winnings
won’t be as great, but losses will be hardly as damaging.
Many people often make the error by thinking that half Kelly
will always result in your bank being half as much as if
one was using full Kelly. This is not so, and quite often
it can be shown that half Kelly (and quarter Kelly) will
outperform the full Kelly method. The fractional Kelly is
great when you average approximately the same amounts of
winners as losers, whilst the full Kelly is disastrous in
this situation. Determining what fraction is right for you
is up to the individual. Half Kelly will see you betting
as much as 30% of you bank on certain games whilst Quarter
Kelly up to 15%.
5c.
Constant Kelly.
The
newly adapted constant Kelly is often preferred by many.
The only difference between constant Kelly and the Kelly
criteria is that constant Kelly will suggest to bet a certain
percentage of a fixed amount, whilst the Kelly criteria
suggests a certain percentage of a variable amount (bank
balance). For example say you have an initial bank of $1,000,
then the constant Kelly will suggest
you to bet a certain percentage (according to the full or
fractional Kelly) of the $1,000 rather than your bank.
E.g..
Suppose you have two games with probability of 0.6 and odds
of $2.00
Full
Constant Kelly:
Bet
amount = overlay / (odds – 1)
=
(2 * 0.6 – 1) / (2 – 1)
= 20%
So
therefore one bets 20% of $1,000 = $200
Half
Constant Kelly would bet 10% of $1,000 = $100.
The
major difference between constant Kelly and nonconstant
Kelly is that no matter if you won or lost your last bet,
you would bet the same amount on the second game as you
did on the first. According to the normal Kelly criteria
you would be more on the second game if you had won on the
first (because bank has increased) or you would bet less
on the second game if you had lost on the first (as bank
had decreased).
One
of the downsides to constant Kelly betting is the greater
chance of breaking the bank, however
it does eliminate the problem of losing money when you win
half your bets. It is better than fixed amount betting and
inverse odds betting as not only does it take into consideration
the probability of winning but also the overlay.
In
conclusion I would suggest either fractional Kelly method
or the constant fractional Kelly method.
Multiple
Kelly Betting
On
of the big problems that punters will find especially in
tennis betting is that sometimes the method that they use
will tell them to spend more than 100% of their bank. Obviously
this cannot happen, so what does one do? Lets
look at a typical example to show some alternatives.
Game
No.

Probability

Odds1

Overlay

Bet%

1

0.7

$2.00

40%

40%

2

0.4

$3.25

30%

13.3%

3

0.8

$1.95

56%

58.9%

Total




112.3%

In
the above example we have to bet 112.3% of our bank which
of course is not possible. Whilst Kelly came up with a multiple
Kelly method for betting on more than one outcome within
the same event, nothing has been done with multiple Kelly
betting in independent events.
 Method 1
Standardise
the bets so that it falls down to 100%.
E.g..
Game no 1 bet 40% / 112.3% = 35.6%
There
is of course a huge downside to this. If all three bets
lose then you’ve gone bust. The probability of this happening
is (1 – 0.7) * (1 – 0.4) * (1 – 0.8) = 3.6%. Therefore it
is strongly recommended that this method is not used.
 Method 2
Standardise
to a certain amount, e.g. 50%.
 Method 3 (multi comparison)
Take
a look at the bets if as it was a multi bet. If the bets
above were part of a multi bet, we would have a probability
of 0.7 * 0.4 * 0.8 = 22.4%. The associated odds is equal
to $2.00 * $3.25 * $1.95 = $12.67. We here have an overlay
of
12.67
* .224 1 = 184%
and
a suggested bet of 1.84 / (12.67 – 1) = 15.77% of bank balance.
Hence we standardise the
above bets to 15.77% of our bank balance.
There are probably many
other methods around but they are just a few.
I hope that this will help
you in your punting as money management is a very important
part of being a profitable gambler.
Jonathan Lowe
www.sportpunter.com