Madson returned to Cincinnati and was examined by team medical director Dr. Timothy Kremchek. The Reds said Saturday that Kremchek told general manager Walt Jocketty the ligament was torn from the bone of Madson's right elbow.
"We talked to the team. We all have to stay positive," Jocketty said. "We have alternatives internally that we will sort through in the next few days."
Madson agreed in January to a one-year contract guaranteeing $8.5 million, after a $44 million, four-year deal to stay with Philadelphia collapsed in November.
The 31-year old reported discomfort in his elbow at the start of spring training but insisted it was an annual ailment he always had worked through. He didn't pitch in any exhibition games.
Madson pitched batting practice Tuesday and had been scheduled to throw again on Friday.
"He looked very good on Tuesday. He felt some tightness the next day," Jocketty said. "He felt fine all spring until lately. Even after he sat out for a little bit and came back, he felt real good. After the live session the other day it felt tight but even when he left the other day, he felt fine."
Dr. Kremchek explained to Jocketty that bleeding made it appear the tear was recent.
Madson's contract calls for a $6 million salary this year, of which $2 million is deferred until Nov. 1 and $2 million until Nov. 1, 2013. The agreement includes a $11 million mutual option for 2013 with a $2.5 million buyout.
Madson saved 32 games in 34 chances last year for the Phillies and was to have replaced Francisco Cordero as the Reds' closer.
"Those are some of the things we'll sort through in the next week or so," Jocketty said.