Sheffield, who was set to earn $13 million in 2007 after having his option picked up by the Yankees last weekend, received a two-year, $28 million extension from the Tigers. The deal also includes a limited no-trade clause.
New York received three right-handers from Detroit, most notably 23-year-old Humberto Sanchez. The Yankees also added Kevin Whelan and Anthony Claggett, a pair of 22-year-old relievers.
"We're happy we're adding three quality arms to our system," general manager Brian Cashman said. "Hopefully we can use them to our advantage to give us more depth and flexibility."
Cashman and Tigers GM Dave Dombrowski reached an agreement on the trade on Tuesday evening, but Dombrowski wanted a 72-hour window to speak with Sheffield, wanting to make sure that the player would be happy coming to Detroit.
Dombrowski and manager Jim Leyland each spoke with Sheffield, who played for the two men a decade ago with the Florida Marlins, and they hammered out the extension on Thursday night before announcing the deal on Friday.
The Yankees had picked up Sheffield's option last Sunday with every intention of trading him. With Bobby Abreu signed to play right field, Sheffield's only spot with the Yankees would have been at first base, and he had told Cashman he would only change positions full-time if he received a contract extension -- which the GM was not willing to give him.
"I didn't think that an extension was realistic, so I turned my attention to the trade market," Cashman said. "I was trying to find something that would make the Yankee family happy and, consequently, if it could make the Sheff family happy, it would be all for the best. I think this worked out in everybody's favor."
With Alfonso Soriano, Aramis Ramirez and Carlos Lee representing the only big-name sluggers on this year's free-agent market, Cashman knew there would be a market to deal Sheffield, who turns 38 this week.
Cashman said that while he received interest from several teams, he had narrowed it down to three finalists, each of which had made offers for Sheffield.
"I had a number of deals on the table and this is the deal I wanted," said Cashman, who wasn't worried about adding Sheffield's bat to the team that represented the American League in this fall's World Series. "They were going to get somebody, so to take a lesser deal somewhere else made no sense to me. I needed to make the best deal for this franchise."
Cashman was looking for either immediate help on the big-league level or a high-end prospect, preferably a pitcher. Sanchez represents the latter, having been ranked last season as the Tigers' sixth-best prospect by Baseball America.
Sanchez, a native of the Bronx, was 10-6 and ranked second among all Tigers Minor League pitchers with a 2.63 ERA and 129 strikeouts in 20 starts for Triple-A Toledo and Double-A Erie in 2006. He struck out 129 in 123 innings, while allowing 97 hits and 47 walks.
"Sanchez looks like he could be that diamond in the rough type of guy," Joe Torre said. "You have to stockpile pitching -- especially young pitching."
"He's a strong prospect," Cashman said. "We're excited about him. He's the front-line guy of the three."
Sanchez went 5-3 with a 1.76 ERA for Erie, holding opposing hitters to a .190 batting average in 11 starts before being promoted to Toledo in June. In his first five starts with Toledo, the 6-foot-6 Sanchez went 4-1 with a 2.05 ERA, earning International League Pitcher of the Week honors. After going 5-3 with a 3.86 ERA in nine starts with the Mud Hens, elbow problems shut him down during the second half of the season.
In August, Sanchez was examined by Dr. Lewis Yocum, an orthopedic specialist who is also the medical director for the Angels. Cashman said that the Yankees spoke with Yocum this week, receiving a clean bill of health for the pitcher. Sanchez threw a bullpen session in Lakeland, Fla., for some Yankees officials this week, giving Cashman no hesitation about pulling the trigger on the trade.
"Sanchez has obviously got a lot of potential," Cashman said. "He has a lot of ability; our plan is to have him go to [Triple-A] Scranton and hopefully take a lot of steps forward.
"Whether he's going to be a guy who emerges as a player that can help us in '07, '08 or '09, I don't know yet. Time will tell. We look at him as a long-term asset, so whether we can start cashing in on it as early as '07 remains to be seen."
Whelan ranked third among all Tigers Minor League pitchers with 27 saves in 2006, going 4-1 with a 2.67 ERA in 51 games for Class A Lakeland. He held opposing hitters to a .178 average and held right-handed hitters to a .158 average.
In addition to being named a top prospect in the New York-Penn League following the 2005 season, Whelan also ranked as the No. 10 Tigers prospect by Baseball America in 2006. He was originally selected by the Tigers in the fourth round of the 2005 First-Year Player Draft out of Texas A&M.
Claggett posted a 7-2 record with a team-best 0.91 ERA and 14 saves in 51 games for Class A West Michigan in 2006. He held opposing hitters to a .174 batting average and did not allow a run in his final 10 appearances of the season. He was selected by the Tigers in the 11th round of the 2005 First-Year Player Draft out of UC Riverside.
"We gave up a lot," Dombrowski said. "We think they're all going to pitch in the big leagues and have a nice career, but I also realize if you're going to get Gary, you're going to have to give up talent."
"I think our system has taken giant steps forward in the last two years," Cashman said. "We've moved significantly up the flagpole from a couple of years ago, when we were the 25th or 26th franchise, prospect-wise. I think we're in the middle of the pack now, and we're proud of that."
Mark Feinsand is a reporter for MLB.com. Reporter Jason Beck contributed to this article. This story was not subject to the approval of Major League Baseball or its clubs.