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Money Management

Money Management

Money management is probably the most crucial skill any sports bettor can possess. Even the greatest betting strategy will lose you money if you have bad money management. Many people do not realise just how important this concept is but to illustrate it I will explain a basic betting scenario and point out how crucial money management is in that strategy.

So let me propose a game where two players play against each other and flip a coin. Player 1 plays as the bookmaker and player 2 plays as the punter. Player 2 is to bet on the outcome of the coin flip, heads or tails. Now we all know that the correct odds to give this flip of a coin would be even money, or 2.0 in decimal odds. This would make the game break even for both players as the odds paid are correct. Now assume that the bookmaker changes the odds to 2/1 on. This now gives the punter a huge edge in the game. He knows he will win 50% of the time but is getting paid double when he wins. This is a very profitable bet for the punter to make, and we all know that. Wouldn’t we all love to find a bet like that somewhere? It would be like printing money.

Now let’s apply bad money management to this ridiculously profitable bet. The punter starts off with $1000 and decided to bet $200 on the flip of a coin, he wins and now has $1400 total. He sticks to his plan of betting 20% of his capital and bets $280, this time he loses and is down to $1120. He logically thinks, I’ve won 50% of the bets I’ve put on, which is what it should be and I am winning, so this is a winning strategy! Of course he is right but what if a long string of losing bets comes in? Let’s say 7 losers in a row, which will happen just under 1% of the time (0.78% to be exact). That will result in a 79% drawdown on his account balance if he sticks to betting 20% on each bet.

Now suddenly that profitable scenario is not quite as profitable as it is well within the statistical realms of possibility for him to have well of 50% drawdowns on a regular basis. So he has managed to somehow take this incredibly profitable situation and make it into a situation that is difficult to profit off of. Whereas if he just employed a sensible money management strategy of only risking 1-2% his risk of ruin is basically non-existent and he can continue to print money.

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