The Gunners, who had maintained throughout the summer that the Chilean was not for sale, were said to have finally given in to Pep Guardiola's team's demands and were ready to accept their £60m ($77.7m) offer on the condition that they can sign a replacement.
Arsenal made a last gasp move for Thomas Lemar despite Wenger stating earlier in the month that a deal for the Frenchman was 'dead'. The north London club offered an mouth-watering £92m and their fee was finally accepted by AS Monaco. The player, however, rejected the chance to move to the Emirates owing to lack of Champions League football.
Lemar's rejection acted as a domino effect resulting in Sanchez's deadline day move to City falling through much to the chagrin of the Etihad Stadium outfit who had made signing the Chilean their top priority. Reports emerged that the Gunners forward had signed a deal with City and was said to have informed Arsenal that he would not play for them again.
However, Wenger has confirmed that the deal was not as close as made out to be and is confident that Sanchez's commitment to the team will be 100% once he returns from international duty. The manager also revealed that the club are willing to make a financial sacrifice to ensure the quality of the squad as they now face the danger of two of their key players – Sanchez and Mesut Ozil – leaving on a free transfer next summer.
"'It was not very close," Wenger said, as quoted on ESPN. "It's very difficult for me to speak about that because what I want now is the player to focus on his career, on his season and Arsenal."
"I always think first, make sure that my commitment is at the level that is expected from people paying me and have confidence in me. On the player's side it is exactly the same.
"I cannot tell you everything that happened because after you decide to let a player of that calibre go, you need to replace him because nobody would understand that you let the player go.
"When you cannot do it you keep the player, and you make a financial sacrifice because at the end of the day what you want is to have a team with good potential and top quality," the French coach explained.
"So Alexis Sanchez will go, like Mesut Ozil, in the final year of his contract, or you think that during the season you find a way to extend the contract, or at the end of the season the players go for free."
Lemar, meanwhile, was one of Wenger's priority targets since the start of the summer and Arsenal had more than one bid turned down by Monaco for the winger. It was initially reported that he was keen to move to north London.
Wenger had given up on the deal in the week leading up to deadline day, but the club reignited their interest when it became clear that City were unwilling to give up on Sanchez. Arsenal made a club-record bid which was accepted by the Ligue 1 club, but in the end the player turned down the move. It has been reported that Liverpool's late interest had turned his head and he was keen on joining the Anfield club instead, but they were unable to match the fee offered by Arsenal.
"The player has chosen to stay at Monaco," Wenger told BeIN. "I do not want to talk too much. You have to respect what really happens on the negotiation side."
"I know we live in an era of transparency but at some stage to respect everybody you have to not talk too much about that," he added.