Sheets, 31, who missed the 2009 season following elbow surgery, was believed to be asking for a two-year deal, averaging $10 million-$12 million per year.
The Cubs have committed about $125 million for 2010, and they have eight arbitration-eligible players who will get raises, including Carlos Marmol and Ryan Theriot. This year's payroll was expected to reach $140 million, and there isn't room to handle Sheets' price tag.
The Cubs are focused more on finding a veteran right-handed reliever than another starter, a team official said Tuesday.
The Cubs do feel they have enough starters to get through the first month of the season even without Ted Lilly, who is rehabbing from arthroscopic surgery on his left shoulder. Lilly was to be evaluated this week when he comes to town for the Cubs Convention, and he could begin throwing later this month. He had the surgery in early November.
Chicago heads into Spring Training with Carlos Zambrano, Ryan Dempster and Randy Wells set for the rotation, plus Carlos Silva, Jeff Samardzija, Tom Gorzelanny and Sean Marshall as candidates for the other spots.
With Marmol set as the closer, the Cubs would like to add an experienced setup pitcher to complement lefty John Grabow, and the club is exploring both trade options and free agents. There will be a lot of turnover in the bullpen, which could be very young with pitchers such as Angel Guzman, Justin Berg, David Patton and Esmailin Caridad in the mix.
Marmol is the fourth different closer in the past four years, and he, Marshall, Guzman and Patton, a Rule 5 Draft pick last year, were the only other pitchers who were on the 2009 Opening Day roster in the bullpen.
Carrie Muskat is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.