The news was first reported by CBS Sports' Jason La Canfora.
Bailey met with the Broncos face to face Wednesday, and he wasn't offered a pay cut to stay after 10 seasons with the team. The Broncos are ready to move on, Rapoport reported, but Bailey wants to keep playing.
That means Bailey will hit the free-agent market for the first time.
This means Denver faces big questions in the secondary, with the team's best cornerback, Dominique Rodgers-Cromartie, also a free agent.
Bailey, meanwhile, should get a short-term contract offer after the top tier of free-agent cornerbacks land with their new teams next week.