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So, to my mind, the way that the Colts would deal with Peyton if it turns out that he can't play again, is to go after him in court. He signed that massive contract, but the question for the Colts is whether he knew how badly his recovery was going when he signed.
If he was less than forthright with the organization, then a case could be made for fraud and the dissolving of the contract. It likely wouldn't work, but you never know.
Irsay & Polian are exactly the sort of fellows who would do something like that, IMHO.
The PR hit would not be worth the likely losing effort. Manning retired even under somewhat tragic circumstances would continue to make money for the Colts. Suing him would serve little purpose. Remember, the Pack offered Brett $20M just to retire...