Nani, 36, hasn't played since suffering a partial tear of his anterior cruciate ligament (ACL) in January.
But before that, the former Portuguese international failed to live up to the hype, going goalless in all 10 of his starts.
Nani signed on a marquee deal last July that was effectively a one-year contract with a clause for a second season if he played a certain number of games.
Network Ten reported Victory's board had met to discuss Nani's contract and as he hadn't met that games clause, opted not to re-sign him, with the club keen to invest in younger players rather than continue with his highly-paid deal.
Nani's contract is partially subsidised by the Australian Professional Leagues (APL) as a marquee deal.
Victory wouldn't comment on Nani's future beyond saying he was a contracted player.
He has been in Europe in recent months rehabilitating his injury.
Nani spent eight years at Manchester United, winning the 2008 Champions League title as well as four English Premier League crowns and four FA Cups.
He arrived at Victory amid considerable hype and made a positive impression early in his time at the club with his attitude and workrate, but failed to back that up with goals and assists on the pitch.
His season-ending injury summed up a tough campaign for Victory - headlined by December's violent pitch invasion by their fans - in which the ALM powerhouse had again missing the finals.
Victory faced Macarthur on Sunday and will host Brisbane Roar on April 30 in their final game of the season.
