In a series of tweets Thursday, the Broncos' chief of football operations said the team is engaged in constructive conversations with Bailey's representatives about keeping the 32-year-old star in orange and blue.
The Broncos aren't planning to use their franchise tag on Bailey because that would cost them about $15 million in guaranteed salary next season. If Denver doesn't sign Bailey to a new deal, he would become an unrestricted free agent when a new collective bargaining agreement is reached. The current agreement expires March 3.
Bailey just completed his seven-year, $63 million contract with a 10th Pro Bowl berth, a record for cornerbacks.
"We've been working with Champ Bailey's representative this week on a new contract, which is an important priority for us," Elway wrote on Twitter. "Our conversations have been constructive, and we'll continue those talks in the hopes that we can reach an agreement. Champ's an elite player who means a great deal to our entire organization and our fans. We want Champ to finish his Hall of Fame career as a Denver Bronco."
Bailey was close to signing a four-year extension for more than $40 million in October when the team suddenly pulled the offer, concerned about his age -- he'll be 33 in June -- and the league's labor uncertainty.
That means Bailey, who's coming off one of his better seasons in Denver, stands to become an unrestricted free agent for the first time in his career.
Yet another switch in scheme and philosophy would go down easier with Bailey on board, especially with talented second-year cornerback Perrish Cox's status uncertain as he faces a sexual-assault case.
"Champ is an outstanding player, and I'd love to have the opportunity to work with him," Allen told The Associated Press. "I think he'll fit in the things that we're going to ask him to do, and we'd love to have him back. At the end of the day, it's really a decision for management and him and his agent, and, hopefully, they can all come to an agreement that both sides can live with."
Bailey has long maintained that he loves Denver and would like to stay put, but that winning is his primary concern. He has been to the playoffs just three times in 12 NFL seasons and has never made it to the Super Bowl.
Bailey's agent, Jack Reale, told The Denver Post that he wouldn't comment on the current state of negotiations. He also wouldn't reveal what Bailey selling his house means for his future in Denver.
"Several guys realized I was a free agent and said they'd love to play with me," Bailey said. "But they don't make the decisions. Hopefully, teams will show interest, and we can really get things going in a couple months."
Bailey also said at the time that he was buoyed by Fox's hiring but noted player acquisitions were equally important for a team that has so many defensive needs.
"I think we're going in a good direction," Bailey said. "I don't think things can get worse. One thing I do know is coach Fox is a good, defensive-minded coach and won a lot of games throughout his career, as both an assistant and head coach. I know he can do a good job for the Broncos. It's all about who they bring in and try to fill the roster."
The Associated Press contributed to this report.