An option bonus is similar to a roster bonus. However, rather than receiving money for remaining on a team on a certain date, the team has the “option” to pay the bonus or terminate the player’s contract.
When an option bonus is exercised, it is subject to probation like a signing bonus. If the option is not exercised, the team is not obligated to pay the player or the amount does not affect the salary cap.
Example: Peyton Manning
When the Indianapolis Colts released Peyton Manning in 2012 and sent shockwaves through the sports world, it was an option bonus that forced the Colts’ hand.
On March 3 of that year, Manning was due a $28 million option bonus. The team was in a dilemma. As Manning was coming off multiple neck surgeries, the team had the first-overall selection in the draft, and Stanford quarterback Andrew Luck was the obvious choice.
The Colts either had to commit to paying Manning the entire $28 M or let him go. Knowing Luck was the quarterback of the team’s future, the team decided not to exercise their option to retain one of the greatest quarterbacks of all time.