The Super Bowl MVP was to receive a $10 million roster bonus during the offseason but by converting the money into a regular signing bonus, the Colts can prorate that amount over the remaining four years of his deal. That saves Indianapolis space under the cap, which is $109 million.
The restructuring was disclosed to The Associated Press on Wednesday by a person familiar with the negotiations who spoke on condition of anonymity because the deal had not yet been signed.
Colts spokesman Craig Kelley said the team had no comment.
Manning signed a $98 million contract in March 2004, the season after he shared the league's MVP award with Steve McNair.
He followed that with a record-setting 2004 season in which he threw 49 touchdown passes and earned his second straight league MVP award.
In 2005, Manning guided the Colts to a 13-0 record and the AFC's No. 1 seed before losing in the divisional round of the playoffs to eventual Super Bowl champion Pittsburgh.
But this season, Manning showed more patience in throwing short and relying on his ground game, using that combination to bring the Colts their first Super Bowl title since moving to Indianapolis in 1984.
Manning has led the Colts to seven playoff appearances in nine seasons, including five straight under coach Tony Dungy, and after breaking John Unitas' franchise record for completions last season is closing in on Unitas' other career records for passing attempts, yardage and touchdowns.