Spurned by Cliff Lee, the New York Yankees reportedly began spending the money that was to be allotted to the left-handed ace by agreeing to a contract with catcher Russell Martin, a source told ESPN The Magazine's Buster Olney.
The deal, which carries a base salary of $4 million, was completed on Tuesday as Martin passed his physical, sources told Olney.
MLB.com first reported the agreement.
The former Los Angeles catcher was nontendered this month after the Dodgers refused to meet his demand for a guaranteed $5 million deal.
The Red Sox also had made an offer to Martin.
Martin appeared to be a rising star in 2007, when he batted .293 with 19 homers and 87 RBIs. He won a Gold Glove, a Silver Slugger award and made the first of two consecutive All-Star appearances. But his production has dropped off the past two seasons.
Martin, who will turn 28 in February, tore the labrum in his hip early in August and missed the rest of last season. He hit .248 in 97 games last season but had an on-base percentage of .347.
Martin is likely to assume starting catcher duties for the Yankees next season while Jorge Posada becomes the team's full-time designated hitter.
Posada batted only .248 last season with 18 home runs and 57 RBIs in 120 games. The switch-hitter has been limited by injuries since his last All-Star season, 2007, when he hit a career-high .338 with 20 home runs and 90 RBIs. Posada caught 83 games last season, was DH 28 games and played first base once.
He spent 15 days on the disabled list with a fractured foot in mid-May and missed scattered games throughout the season with what was termed a Baker cyst behind his left knee, which made crouching behind the plate difficult and painful.
Information from ESPNBoston.com's Gordon Edes, ESPNNewYork.com's Andrew Marchand and The Associated Press was used in this report.