If the actor had put on the long white beard and clasped the wizard's staff as the hero of Middle Earth he would have earned as much as 225 million.
Peter Jackson, the director of the fantasy trilogy, has revealed that New Line Cinema, the production company behind the films, offered the Scottish actor between 10 and 15 per cent of worldwide box office takings to secure his participation.
A copy of the script was delivered to the actor in 1999 and the lucrative offer was put to CAA, the agency that manages him.
However Sir Sean turned the offer down as he did not understand the complicated plot of J.R.R. Tolkien's fantasy masterpiece.
If he had accepted the terms of the contract, which included a small fee but a large chunk of the film's future earnings, he would have earned more from a single screen role than any actor in the history of motion pictures.
The three films in the trilogy, The Fellowship of the Ring (2000), The Two Towers (2001) and The Return of the King (2002), earned a total of 1.5 billion at the box office, which would have meant the former Bond actor would have earned between 150 million and 225 million.
The fee would have dwarfed the 23 million earned by Jack Nicholson under a similar deal for his role as The Joker in Batman, released in 1989.
The offer, which had previously remained confidential, was revealed in a new biography of Mr Jackson, entitled A Film-Maker's Journey by Brian Sibley.
In the book, Mr Jackson explained that he was under pressure from the producers to cast Sir Sean in the role, which eventually went to Sir Ian McKellen who was later nominated for an Academy Award for his performance.
Mr Jackson explained: "New Line were indicating that having a major name like Connery was necessary in order for them to green-light the film. They asked us if we would agree to send a copy of the Fellowship screenplay to Sean with a view to enticing him to play Gandalf.
"I couldn't imagine him wanting to spend eighteen months in New Zealand, and I didn't think they could afford his fee, but [Mark] Ordesky [the film's executive producer] told me New Line were going to offer a small fee in exchange for a large slice of the gross.
"Mark said New Line was prepared to give him between 10 per cent and 15 per cent of the films' income. Some kind of offer must have gone in because in April 1999 the script was bundled off to Sean who read it - and declined the role."
At the time rumours swept through New Zealand that Sir Sean was taking the role and there were a number of fictitious sightings of the Scotsman.
The director said he had been concerned that despite the actor's ability, his fame would eclipse the role. Mr Jackson explained: "I felt Gandalf would take on a Sean Connery persona, with a long beard and robe."
Last year Sir Sean explained his decision to turn down the role: "Yeah, well, I never understood it. I read the book, I read the script, I saw the movie. I still don't understand it. I would be interested in doing something that I don't fully understand, but not for eighteen months."
Last night, the book's author Mr Sibley said: "I don't know if Sean Connery regrets not taking the role. I suspect not as he clearly did not warm to the material, but you can imagine him in the role; he would have brought a different strength and charisma.
Mr Jackson this week upset fans of Middle Earth by stating that he would not be directing The Hobbit, the prequel to The Lord of The Rings. The director is in dispute with New Line over earnings he believes he is still due from the sales of DVD and computer games based on the trilogy. It is understood that he has earned 103 million from the films.
THE ONES THAT GOT AWAY
THIS is far from the first time an actor has rejected what turned out to be a blockbuster role.
• Sean Connery spurned the part of Captain Von Trapp in The Sound of Music. It went to Christopher Plummer.
• Julia Roberts rejected the starring role in Basic Instinct and Sharon Stone got it instead.
• Tom Selleck turned down the Indiana Jones role in Raiders of the Lost Ark because he could not get out of the TV series Magnum. The second choice, Harrison Ford, became a superstar.
• Gene Hackman said no to the role of Hannibal Lecter in Silence of the Lambs. Anthony Hopkins then got the part.
• Michelle Pfeiffer backed out of the role of agent Clarice Starling in the same film. As a result, Jodie Foster landed one of her biggest hits.
• George Raft turned down the role of hard-boiled private eye Sam Spade in the John Huston classic The Maltese Falcon, so giving Humphrey Bogart the role that kick-started his career.
• Al Pacino rejected the role of Elliot Ness in The Untouchables, leaving it to Kevin Costner to take over the job.
• Sylvester Stallone and Clint Eastwood both turned down Beverly Hills Cop - the part of Axel Foley went to wise-cracking Eddie Murphy instead.