Varlamov, who is coming to the end of his entry-level deal and is set to become a restricted free agent Friday, has yet to accept a qualifying offer from the Capitals. According to the source, Varlamov would have liked the team to present him with a more lucrative deal, but given the oft-injured Russian is now likely third on the team's depth chart behind this past season's playoff starter Michal Neuvirth and impressive minor leaguer Braden Holtby, Varlamov isn't likely to see more money at this stage.
According to a report from Yahoo! Sports, the 23-year-old Varlamov is considering a move to the KHL, where he will presumably make more money but risk becoming an NHL afterthought. If he does move to the KHL, a move that can't happen until free agency opens at noon ET on Friday, the Capitals would still retain his NHL rights.
"It's been explained to Varly that Tim Thomas didn't perform the way he expected last year and it didn't go the way he wanted, but he came back and won a Vezina and won a Cup this year. Not bad," McPhee told local reporters at the team's practice facility Tuesday. "So the opportunity's there."
The Capitals' goaltending has been an ongoing saga the past couple of years. In spring 2009, Jose Theodore was yanked one game into the postseason and replaced by Varlamov, then a rookie. In August 2009, Theodore lost his infant son, but the goaltender was remarkable during the 2009-10 regular season (30-7-7). Then, one game into the postseason, he was gone again.
Theodore was gone for good before the start of the 2010-11 season and Varlamov had to compete with Neuvirth for playing time. Varlamov was placed on injured reserve at the start of this past season and various ailments limited him to 27 games. He had an 11-9-5 record with a .924 save percentage and 2.23 goals-against average.
Neuvirth went 27-12-4 with a .914 save percentage and 2.45 GAA in 48 games. He was good, if not great, in the playoffs before the Caps were swept in the second round by Tampa Bay.
Scott Burnside covers the NHL for ESPN.com.