General manager Dan O'Dowd said this week he and Betancourt's representatives were discussing a number of contract structures, including picking up the option. Betancourt, 34, who went 4-3 with a 2.73 ERA in 61 games with the Indians and Rockies, can file for free agency.
"We did not exercise the option, but we will continue to negotiate with Rafael," O'Dowd said in a statement release by the club.
Betancourt arrived in a trade near the non-waiver deadline and solidified the right-handed setup role by going 3-1 with a 1.78 ERA in 32 appearances as the Rockies earned the National League Wild Card. He gave up one run in 2 1/3 innings in the National League Division Series against the Phillies, who won the series in four games.
Betancourt stepped in when setup man Manuel Corpas was beset by elbow trouble and inconsistency. Reports on Corpas' health have been positive, but O'Dowd is trying to build as much depth as possible in the bullpen.
Betancourt is rated as a Type A free agent. If the Rockies offer Betancourt arbitration and he signs elsewhere, the Rockies will be entitled to two early-round picks in the 2010 First-Year Player Draft -- either the first- or second-round pick of the club that signs him, and a compensatory pick between the first and second rounds.
Betancourt and right-handed reliver Juan Rincon filed for free agency on Friday. Rincon began the season with the Tigers and went 1-0 with a 5.23 ERA in seven appearances. He went 3-2 with a 7.52 ERA in 26 appearances with the Rockies in a stint that was interrupted by a bout with right elbow tightness in August.
Thomas Harding is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.