Bailey - an assistant to Mark Williams in Port's premiership year in 2004 - was the Power's No. 1 target to provide some senior experience to novice Matthew Primus, who led the club to a dismal 3-19 record in his first year in charge.
Now Port - which had already failed to bring West Coast assistant Phil Walsh back to Alberton - must look elsewhere.
Bailey - axed from Melbourne after the record 186-point defeat to Geelong in round 19 - has been appointed to the newly-created role of strategy and innovation coach at Adelaide. He has signed a three-year contract and will move back to SA this month.
Bailey, 44, described the decision to join the Crows instead of the Power as "tough".
But he said the chance to work at a new club, particularly one which was so well resourced, was too good to knock back.
"But the biggest thing was how could I become a better coach because I don't intend to sit back and take things easy," he said.
"I need to be challenged and I think you need to feel a little bit uncomfortable in your environment to get the best out of yourself."
Bailey said he had "a great association" with Port from 2002-07 but noted that he hadn't been back to the club since joining Melbourne as senior coach in 2008.
"Going to a new club, you are going to learn more. I am a better coach than when I first started at Melbourne (in 2008) and I think I will be a better coach after being at Adelaide."
Bailey - who was gutted at being axed by Melbourne in his fourth season in charge - said he had put his senior coaching aspirations on hold and "at this stage" was only concerned with helping Sanderson win a premiership at Adelaide.
"I'm still motivated by the love of the game and I'm fully commited to Sando," he said.
Adelaide chief executive Steven Trigg said the club was thrilled to secure Bailey.
Bailey's win-loss record had been compromised early in his tenure when he later admitted to doing what was requested of him by his club.
In Bailey's press conference the day after his dismissal, he reignited tanking talk by saying: "I had no hesitation at all in the first two years in ensuring the club was well placed for draft picks. I was asked to do the best thing by the Melbourne Football Club and I did it. I put players in different positions."
At the end of the 2009 season -- following consecutive years of four wins or less -- the Demons earned the right to draft the best two teenage talents in the country and selected Tom Scully, who has left to join Greater Western Sydney, and Jack Trengove.
Bailey was subjected to a huge amount of scrutiny over the latter stages of the season for the way he orchestrated team selection, the placement of players on game day and for his vastly restricted use of the interchange bench in some games.
Adelaide yesterday said Bailey's job description included coaching the midfield on match days as well as implementing match-day strategies.
The Crows have retained Mark Bickley and Scott Camporeale and will soon announce a replacement for assistant coach Ben Hart, who has joined Collingwood. Bailey, 44, has been on the coaching path for more than a decade.
And contracted Western Bulldogs caretaker coach Paul Williams, 38, has left the Whitten Oval to join Carlton.
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