Applying the Kelly Criterion in Daily Fantasy Sports
It could be argued that bankroll management is more important in daily fantasy sports than the edge you develop when you begin studying stats and analyzing matchups. If you can’t manage your bankroll properly, math says that your risk of ruin increases exponentially.
When making daily fantasy sports selections, many expert roster managers use the Kelly Criterion when determining the size of their bets. By using the Kelly Criterion, you can be sure that you reduce your bankroll’s risk of ruin so that you can endure the inevitable downswings that will occur when betting on daily fantasy sports.
The Kelly Criterion Explained
The Kelly Criterion helps you determine how much of your bankroll you should wager when selecting rosters for your daily fantasy draft. The Kelly Criterion formula can be illustrated in the following example.
Let’s say you have a $100 bankroll and you’re wanting to play a 10 person 50/50 double up. The buyin costs $1.00 and the total prize pool is $10. If you place in the top 5, you’ll be able to earn $1.8.
You notice that two of the fantasy managers in the pool aren’t skillful players and you believe that you can easily beat these two players. With this in mind, you only have 7 other players to compete against. According to the Kelly Criterion, you’d do the following math:
The $1.00 50/50 offers you 4.5 to 5.5 raw odds. You factor that your skill edge in this specific competition is 60% considering the fact that you think that two of the managers in the pool aren’t very skillful. Using the popular Kelly Criterion calculator, your maximum bet size on this competition comes out to $11. Should you be risking 11% of your bankroll? Most fantasy sports managers adhere to the 2.5% bankroll rule.
Factoring this into the equation, your maximum bet size in competitions such as these should equate to $2.00 (Most sites do not offer $2.50 buyin tournaments). As a result, if you can find similar pools that offer you the same payouts and you believe that your edge is still at 60%, you should be playing in these pools with a maximum buy in of $2.00.
The Kelly Criterion calculator is one a tool that serious fantasy sports managers use on a daily basis in order determine their maximum bet size for any given competition. If the Kelly Criterion calculator gives you a negative expectation, you should not wager in that specific competition. The Kelly Criterion hinges on your edge, so be sure that you are not overestimating your edge when making Kelly Criterion calculations.