According to Ken Davidoff of Newsday.com:
"Four sources said that (Johnny) Damon and the Yankees were talking about a role in which Damon, 37, would get occasional at-bats as a designated hitter and fill in at leftfield, allowing starting leftfielder Brett Gardner to either rest or shift to fill in for centerfielder Curtis Granderson or rightfielder Nick Swisher."
"Damon would prefer a job with more guaranteed playing time, two of the sources said, so a deal is not close and far from guaranteed"
SI.com's Jon Heyman confirmed Davidoff's report via Twitter.
However, after his report, Davidoff commented on his blog that he's doubtful of a reunion between Damon and the Yankees.
"If I were a betting man, I'd wager on this not happening. I'd say that Damon waits out the market some more and finds more certain at bats in a place like Tampa Bay or Baltimore."
The Yankees have been extremely quiet since losing out on pitcher Cliff Lee. Adding Damon would at least create a little of buzz heading into Spring Training.
However, Damon's asking price is probably way too much for what the Yankees value his playing ability.