Lee agreed to a five-year contract worth $120 million with a vesting option for a sixth season, according to MLB.com.
The Yankees reportedly offered the free-agent a seven-year deal worth $154 million, and the Rangers even put more money on the table than the Phillies, so clearly this decision wasn't about just dollars and cents.
Lee spent the final two months of the 2009 regular season with Philadelphia before leading the team to the World Series and, by all accounts, enjoyed his time there.
New York general manager Brian Cashman clearly did all he could financially to get Lee in pinstripes, but whether he could have done anything else may never be known.
This has been a disastrous offseason for the Bombers, who struggled through a messy negotiation with free-agent Derek Jeter before finally inking the captain, lost out on a half-hearted attempt to sign Carl Crawford when the Red Sox swooped in at the last minute, and now, fell short in the Lee sweepstakes.
So where do the Yanks go from here?
The projected rotation currently includes ace CC Sabathia, the young Phil Hughes, a shaky A.J. Burnett and—gulp—Ivan Nova and Sergio Mitre?
The first order of business is convincing Andy Pettitte to delay retirement at least one more year and return to the Bronx.
But then New York is still left with one available spot.
Zack Greinke's name has been swirling around in trade talks, but while he is a terrific pitcher, he's also a known sufferer of social anxiety disorder, and there's no way that would work in the Big Apple. Besides, the Royals would be asking for too much in return.
The second best starter on the free-agent market is Carl Pavano, and there's no way the Yankees could be dumb enough to reconnect with that failed experiment.
The most practical solution is to give Joba Chamberlain the starter's spot back that New York stole from him last winter.
In 2009, Joba started the season where he belonged—in the rotation. This would finally be the year we could forget about all the ridiculous "rules" and just let him pitch, right? Wrong.
Chamberlain struggled with his control at times but still started the season 7-2 with a 3.58 ERA, capped off by an impressive 3-0, 0.83 ERA run after the All-Star Break.
That's when the front office thought it would be a good time mess with Joba again. They threw off his routine by skipping some of his starts, and then, completely dismantled any momentum he had by restricting him to only a few innings or 60 pitches, whatever came first.
Not surprisingly, Chamberlain went 2-4 with a 7.69 ERA over his final 11 "starts."
But it was OK that manager Joe Girardi and Cashman were messing with the pitcher, because they were protecting him, keeping his innings down so that he could finally progress to a 200-inning starter in 2010.
That was before the team traded for Javier Vazquez, pushing Chamberlain out of the rotation following a ridiculous Spring Training audition with Hughes.
Not surprisingly, Vazquez went 8-10 with a 5.56 ERA over 26 starts and was left off the postseason roster.
In the end, the decision to acquire Vazquez left the Yankees shorthanded once again in the playoffs, which led to them being completely overmatched by Lee and the Rangers and brought them back to Square One—desperate for another pitcher.
I'm not confident that the Yankees will give Chamberlain another shot, being that it seems they would rather have Nick Swisher enter the rotation, but this is the only reasonable solution to a messy situation.
Follow me on Twitter at @ JordanHarrison.
Jordan Schwartz is one of Bleacher Report's New York Yankees and College Basketball Featured Columnists. His book Memoirs of the Unaccomplished Man is available at amazon.com, barnesandnoble.com and authorhouse.com.
Jordan can be reached at email@example.com.