Definition
Kelly Criterion calculates optimal bet fraction to maximize long-run bankroll growth. Formula: f = (bp − q) ÷ b, where b = net odds (profit per unit), p = estimated win probability, q = 1 − p. Betting full Kelly maximizes geometric growth but produces extreme variance. Most sharp bettors use quarter-Kelly or half-Kelly to reduce drawdown risk. Kelly assumes your probability estimate is accurate — overconfident estimates lead to overbetting and ruin.
Worked Example
Line: +150 (b = 1.5). Your model: 45% win probability (p = 0.45, q = 0.55). Kelly fraction = (1.5 × 0.45 − 0.55) ÷ 1.5 = (0.675 − 0.55) ÷ 1.5 = 0.125 ÷ 1.5 = 8.3% of bankroll. Half-Kelly = 4.15%. On $5,000 bankroll, half-Kelly = $208 bet.
Why It Matters
Kelly sizing mathematically prevents both underbetting (leaving growth on the table) and overbetting (risking ruin). No other fixed-fraction system optimizes long-run growth given a known edge.