A source confirmed Wednesday morning that although the Yankees had been awarded a claim on the left-hander Tuesday, the Los Angeles Dodgers informed the Yankees they had no intention of trading Lilly.
The Dodgers not only believe they still have a shot at the NL wild card, sitting only 6½ games behind the Phillies, but also would like to keep Lilly long term.
"They're going for it," the source said. "They put [Hiroki] Kuroda on the wire, too, and didn't move him either."
Lilly is also interested in staying in Los Angeles.
"Both the Dodgers and Ted would like Ted to stay," said Larry O'Brien, Lilly's agent.
Lilly, 8-9 overall with a 3.59 ERA, has gone 5-1 since the Dodgers acquired him from the Chicago Cubs at the trade deadline. Lilly, 34, pitched for the Yankees from 2000 to 2002.
Lilly, 34, is in the last year of a four-year, $40 million contract he signed with the Cubs before the 2007 season. He will be eligible for free agency in November.
O'Brien spoke with Dodgers general manager Ned Colletti and assistant GM Kim Ng.
"At least what they're telling me is that the Dodgers are interested in Ted for the future ... And I told them that Ted would be interested in staying with the Dodgers, even before putting his name in the ring for free agency. We might go in that direction."
The contract talks may take place at the conclusion of the regular season.
With owner Frank McCourt going through a contentious divorce, the Dodgers had very little flexibility in the free agent pitching market last fall. But with Manny Ramirez having been traded -- along with his enormous salary -- the Dodgers should have more room to add pitching this offseason. That could start with Lilly, who is 111-93 in a 12-year career.
Wallace Matthews covers the Yankees for ESPNNewYork.com. Buster Olney is a senior baseball writer for ESPN The Magazine.