Yankees general manager Brian Cashman all but closed the door on Damon's four-year tenure in pinstripes on Tuesday, telling MLB.com that the free-agent outfielder remains out of the club's financial reach.
"I'm not having any discussions on him," Cashman said in a telephone interview. "His abilities exceed the money that I have."
Cashman said the Yankees' main priority for the remainder of the offseason is acquiring a right-handed bat to help their outfield mix, which will likely send Damon in search of a new home.
The 36-year-old Damon -- a left-handed hitter -- batted .282 with 24 home runs and 82 RBIs in 143 regular-season games for the eventual World Series champions.
He and his agent, Scott Boras, had entered the offseason with high hopes of finding a deal similar to the $13 million annual salary he earned with New York in 2009, but those pursuits proved more difficult than anticipated.
After the Yankees acquired Curtis Granderson from the Tigers, Boras and Damon reportedly dropped their request to two years and $20 million.
The Yankees countered at two years and $14 million, and after executing more moves in that time to acquire Nick Johnson and Javier Vazquez, the Yankees are believed to have only $2 million to $3 million in the budget to address their remaining needs.
"He's a valuable player that a lot of teams are talking to, I'm sure," Cashman said of Damon. "His abilities exceed my physical ability to keep my finances afloat."
In a text message sent to the Newark (N.J.) Star-Ledger, Damon said that he has choices on the market, but discussions with the Yankees indeed stalled after the club signed Johnson in mid-December.
"Never started again," Damon said of the negotiations. "They have their budget."
Though the Yankees have been steady with their intent to reduce payroll from their 2009 figures, it has been speculated that Cashman could go to ownership and request an increase, as he did last year to fit in both Mark Teixeira and Andy Pettitte. The general manager downplayed that possibility.
"I'll always try to get the budget pushed, but you're not always successful," Cashman said. "The Steinbrenner family has been extremely generous for adding talent, but you can't do everything."
Yankees manager Joe Girardi said on Tuesday at the B.A.T. Dinner in New York that he had spoken to Damon recently, and the outfielder's spirits were high. The same could not be said for the odds of Damon returning to the Bombers.
"I don't think anything is completely shut until it's completely shut," Girardi said. "But we've talked about our budget and what we have, and it has to work within everyone's framework. I don't see it getting done, but you never say never.
"I thought Johnny's spirits were great. We had a great conversation. When you're together with teammates for a long time, it's always hard. If he's not going to be here, we're definitely going to miss him. But I thought Johnny was in a good place."
In search of that right-handed bat, the Yankees can look to a free-agent pool that includes Randy Winn, Rocco Baldelli and Reed Johnson. Without getting into specific names, Cashman said that he has spoken to various players about both Major League and Minor League contracts.
Greg Golson, who was acquired from the Rangers on Tuesday for Minor Leaguer Mitch Hilligoss, is not the right-handed bat that the Yankees have been talking about, Cashman said.
"We traded away some outfield depth in Austin Jackson and Melky Cabrera on the Major League side," Cashman said. "We're trying to get some experience that we can turn to and come in to try to compete for a spot on the 25 [man roster], like all of these guys.
"[Golson's] got [Minor League] options and he's a well above-average runner, a well above-average defender, and [has] a well above-average arm. He has basestealing abilities and can play left, center or right."
Another free-agent option, former Yankee Xavier Nady, reached a preliminary agreement on a one-year, $3.3 million contract with the Cubs Tuesday.
Cashman said that a deal for a right-handed outfielder could happen in the next week, and the GM portrayed the Yankees in the drivers' seat for those negotiations.
"We'll continue to stay in touch with agents, but nothing to report," Cashman said. "It could happen when I decide, 'Yeah, I'm ready to commit.' I have players that are willing to move with me when I decide to."
Bryan Hoch is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.