The Web site reported that Damon and the Yankees have spoken within the past few days, but that Damon would probably have to accept a contract of no more than $5 million guaranteed.
Damon, 36, earned $13 million from the Yankees in 2009 and, via his agent Scott Boras, was thought at one point to be seeking a two year deal in the $20 million range to return. The Yankees countered with a lesser $14 million figure at the time, and appear to be working with even less leeway now.
After making deals to add payroll with the acquisitions of Curtis Granderson, Nick Johnson and Javier Vazquez, the budget-minded Yankees have been thought to be working with approximately $2 million to fill their remaining needs.
Yankees general manager Brian Cashman denied that the club is waiting on Damon's decision, according to a report.
"That's not true," Cashman told The Journal News. "I have a certain amount of money, and when I decide to spend it, I'm going to spend it."
With Brett Gardner tentatively penciled in as New York's starting left fielder, there is interest in Damon, even though Cashman has said that he is seeking a right-handed-hitting outfielder to platoon with Gardner.
One Yankees official said recently that Cashman would "love" to work out a deal with Damon, but the financial figures did not appear to be workable.
Besides Damon, the Yankees can look to a free-agent pool that includes Xavier Nady, Randy Winn, Rocco Baldelli, Reed Johnson, Jermaine Dye and Jim Edmonds, who recently expressed his desire to play in 2010 and mentioned the Yankees as a possible suitor.
But while speaking with The Journal News on Saturday, Cashman said the club has had "no discussions on Jermaine Dye," is "not on Jim Edmonds at all."
The Yankees have interest in Baldelli but no offer has been made, and the asking price for Nady -- another Boras client who is coming off a second Tommy John elbow surgery -- was thought to be too high.
Damon batted .282 with 24 homers and 107 runs scored while helping the Yankees win their 27th World Series championship in 2009, his fourth season in New York.