For most gamblers, the concept of "money management" is truly a mystery. Unfortunately, it is not a way to turn losing picks into winning picks. Most who blame "bad money management" for their gambling losses should look to their handicapping first and foremost, as they are probably not picking winners, and no amount of money management can help that. Money management also doesn't tell you how to weight plays - it is a handicapping question as to whether one bet is better than another.
What money management does address is how to maximize your winnings while minimizing the chance you go broke. If you are playing at a disadvantage (meaning hitting less than 52.4% of your bets at -110), then money management is not going to help you. Your optimum bet size will be zero and you are better off sticking with your day job. But if you are playing at an advantage, money management can tell you how aggressive you can be in your wagering. Money management tries to address the following question:
Let's say I can pick 5 games per week for a whole year, and I know with absolute certainty that I will end the year winning exactly 55% of my bets. And let's also say that I have $10,000 to "invest" in this opportunity. How much should I bet on each game?
Many would say that since you know you are playing at an advantage (since you can beat the house picking 55% winners), that you should bet the maximum amount on each pick. That would mean splitting your $10,000 bankroll equally between the 5 picks each week, wagering $2000 on each. But this can't be the best strategy, because even with a winning percentage of 55%, there is still about a 5% chance of going 0-5 each week. Probability will eventually catch up with you, and that 0-5 week will send your whole investment down the drain. The lesson to learn is this: you can go broke even though you are playing at a long-term advantage.
Picking winners at a good rate does not protect you from the problem of short term random variation. If a 60% handicapper picks 10 games, he will not necessarily win 6 of those. He may win 5 or 7, or even just two. Over 100 games he will not hit exactly 60 either, just as 100 flipped coins don't always end up with exactly 50 heads. So, in determining your wager size, you have to factor in the risk that you will hit a short-term patch of bad luck even knowing you will win in the long run. Money management is used to determine the amount you should bet to minimize that downside of going broke.
The first issue in money management is defining your bankroll, a tricky situation for many gamblers, especially those playing on credit. Consider your sportsbetting an investment, just like a stock purchase or investment into a money market account. The amount of money you have available to invest right now is your bankroll. Too many gamblers base their bankroll on how much they are willing to lose or how able they are to replenish their accounts if they go to zero. Playing with money you don't have is terrible money management practice. Start with what you have sitting in your accounts now - you are always able to add to your investment later.
The size of your plays is based on a percentage of your bankroll. The Kelly criterion is a mathematical formula designed to maximize profits based on expected winning percentage and payout. This, of course, requires being able to accurately estimate your winning percentage, something easier said than done. While it has many detractors, Kelly is useful for determining how to vary your bet size based on your perceived edge, and will get a more complete treatment in a future article.
Using the more conservative half-Kelly numbers, a 55% bettor playing into -110 lines is suggested to bet 2.7% of his bankroll per play. Not coincidentally, most experienced bettors recommend keeping wagers in the 2-3% range. If you are conservative or unsure of your edge, betting a flat 2% of your bankroll per play through the season is a reasonable way to go. If you are weighting plays, a safe range is 2% for the typical play and no more than 4% for the best plays. Riskier plays, like big underdogs on the moneyline or futures bets, might only be worth 1% or a fraction of that per play.
Another money management question is whether the bet amounts should vary as the bankroll varies, or if a flat amount should be kept the entire season. While there are advocates for both sides, sticking with a flat amount throughout the season is much simpler and will give similar results as varying your bets as you win and lose. Take a look at your account balance at the beginning of the season, and use 2% of that as your base play throughout the year. At the end of the season, or as the season of a different sport starts up, you can reassess the situation and adjust as necessary.
For many people, playing by proper money management is hard. If you have $5,000 in your sportsbook account, you should only really be betting $100 per game. It may not be as exciting, but conservative money management is the key to gambling longevity. Even winning handicappers can go broke by overbetting their advantage.
"The Complete Square's Guide to Sports Wagering" is a recurring series aimed at educating novice sports bettors. The next article will take a look at bet sizing using the Kelly criterion.
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