The Ligue 1 giants were rumoured to be considering a bold plan which would see him head back to France on a nominal contract, but an agreement with the Saudi League - which runs until 2030 - has blocked that from happening.
According to sources close to Benzema's camp, Lyon's management reached out to the 38-year-old, who was enthusiastic about the idea, prior to terminating his contract at Al-Hilal.
Benzema is now a free agent after settling his deal in Riyadh with Italian coach Simone Inzaghi signing Ollie Watkins from Aston Villa for nearly €60M.
However, the veteran striker is not available for a typical free transfer, as he remains an ambassador for the Saudi Pro League until 2030 - which prevents him from signing for another club as per L'Equipe.
The Public Investment Fund of Saudi Arabia (PIF) requires star players, under image rights contracts (which includes appearing at sporting events organised by the Kingdom), not play anywhere other than the Saudi Pro League.
That indicates the former French international is on course to retire from professional football as he will be 43 years old in 2030.