strategy
Kelly Criterion
Also known as: Kelly, Kelly Formula, Fractional Kelly
The Kelly criterion is a stake-sizing formula that computes the optimal fraction of bankroll to bet given an edge and odds, maximizing long-run logarithmic growth. Full Kelly maximizes growth but produces high variance; fractional Kelly (typically half or quarter) is more practical.
The Kelly criterion solves the stake-sizing problem mathematically: given a probability of winning p and decimal odds d, what fraction of bankroll f should be bet to maximize long-term growth? The answer is f = (p × d - 1) / (d - 1), assuming the bettor’s probability estimate is accurate.
Full Kelly is theoretically optimal but practically aggressive. It assumes perfect knowledge of the true probability; any overestimate (which happens often) drastically overbets. It also produces high variance, with drawdowns of 50% being routine even for skilled bettors. Most practitioners use half-Kelly or quarter-Kelly, sacrificing some growth for much smaller drawdowns and resilience to probability misestimates.
Worked example. A bettor’s model says a player prop has 58% probability of hitting; the line is -110 (decimal 1.91). Full Kelly: (0.58 × 1.91 - 1) / (1.91 - 1) = 0.108, or 10.8% of bankroll. On a $5,000 bankroll, that’s $540 per bet. Half-Kelly: $270. Quarter-Kelly: $135. If the model’s 58% probability is actually 55% (a 3-point overestimate, easy to make), full Kelly is now substantially overbetting and the bettor would suffer larger drawdowns. Half-Kelly stays profitable.
Kelly only works if the probability estimate is honest. The single biggest failure mode is overconfidence: a bettor assumes their model is more accurate than it is, applies full Kelly, and overstakes systematically. Elite Picks reports edge as a percentage but does not auto-stake by Kelly; the recommendation is flat-percentage staking or fractional Kelly with explicit calibration history. The math is a tool, not an oracle.
Example
A bet at +200 with true probability 40% has Kelly fraction = (0.40 × 3 - 1) / (3 - 1) = 0.10, or 10% of bankroll. Half-Kelly would stake 5%; quarter-Kelly would stake 2.5%.