Peyton Predicament, Part 1 is here, detailing what would happen if Manning's option were exercised. Where things get interesting is if the Colts do not exercise the option.
Non-exercise fee
Were the Colts to not exercise the $28 million option by March 8th, there is a non-exercise fee of that same $28 million due two days before the 2012 League Year, March 11th.
Translation: the Colts cannot simply let the option date pass without action; to do so would put them on the hook for the same amount and not have Manning. They will have to take the affirmative step of, yes, releasing Peyton Manning.
Free agent like no other
Assuming Manning is healthy -- and that may be the biggest "if" of this entire discussion -- he may be the most attractive free agent in the history of football. Simply, elite quarterbacks such as Peyton Manning never hit the open market; this is why such ransoms are paid in trades for quarterbacks such as Jay Cutler and Carson Palmer.
As a released player rather than an unrestricted free agent whose contract has expired, the Colts can neither (1) place the Franchise tag on Manning, nor (2) receive a 2013 compensatory draft pick if Manning signs elsewhere.
Again, it is curious why the Colts would agree to this poorly timed option clause, but Manning used his leverage to create options for himself.
Moving the date
As to the Colts needing to decide by March 8th -- before the 2012 League Year and trading period begin on March 13th -- many ask "Can't Peyton push the date back?" Theoretically, perhaps. Practically, doubtful.
Manning and agent Tom Condon negotiated, in effect, a "no-trade clause" without it actually being designated as such.
As to moving the date, the CBA prevents renegotiations of contracts following the last regular season game of the League Year within which the date is in. The March 8th date is in the 2011 League Year, as the 2012 League Year begins on March 13th.
The NFL Management Council would interpret the language to allow the date to be moved, suggesting a moved date is not a "renegotiation." The NFL Players Association's lawyers have a different interpretation of that language, and could contest a moved date as a renegotiation in a grievance against the NFL and the Colts. However, that discussion may be moot due to the following...
Why move the date?
Manning is in limbo right now, both medically and contractually. The medical part may be out of his control and up to Mother Nature. The contract, however, is totally in his control. He will want to know his fate as soon as possible, needing March 8th to get here as quickly as it can. Why would he prolong that?
Even if Manning were allowed and amenable to moving the date, he would not want to move it past the first couple days of the new League Year -- March 13th -- so if the Colts release him he would be on the market when teams make their quarterback decisions. And, of course, his neck condition will not be dramatically different in a week's time.
Trade? No
The only reason I could surmise why Manning would move the option date back is to allow the Colts to receive some compensation for his services and trade him. However, Irsay has said he will not trade Manning, and being traded is certainly not in Manning's best interests. He can become free to sign with any team in the NFL, rather than be limited to negotiating with one team through a trade.
From the Colts' perspective, they would certainly like to have the benefit of time to monitor the situation longer. But they are not the party in this negotiation with leverage.
Irsay's call
Reading between the lines from interviews, tweets and perhaps conversations with confidante Rob Lowe, my sense is that what Irsay truly wants is for Manning to retire. Since he does not want to cut or trade Peyton Manning, that leaves two options: (1) going forward with the financial and organizational commitment to a player that has been the past and may be the present, but probably not the future, or (2) hoping Manning will retire, certainly with some continuing role on the team.
The problem for Irsay is that Manning -- despite no immediate assurances from the medical side -- wants to play.
What I would do
As hard as it is to part with the face of the franchise, I would move on.
The confluence of three factors -- (1) a massive financial commitment required -- $35.4 million in 2012 alone, (2) an uncertain neck condition involving regeneration of nerves (this is not a shoulder or knee injury), and (3) a special player in Luck, available for half the price at the same position -- all conspire towards a parting of ways.
Like the Packers and Brett Favre, the Colts would prefer a nice, easy retirement from their longtime superstar, with a non-playing role with the team to come. Sometimes, however, the script does not have a clean and tidy ending.
And like the Favre-Packers situation four years ago, there is a growing sense that change is in the air. Favre was not feeling any warmth or courtship from the front office that he had felt in prior years. The same appears true with Manning, and public relations spinning has begun. Things could get a bit messy; emotions will run high.
My sense is -- with a new general manager, a new coach and potentially a new quarterback, we are seeing an end of an era in Indianapolis. The inexorable march of time and turnover of players in the NFL continues, even at the highest levels. Even the best of NFL careers -- which Manning's certainly has been and may continue to be -- rarely end well.
March 8th beckons, with the eyes of the football world upon it.