The France international is out of contract with the Gunners in the summer and was reportedly holding talks with Manchester City on Monday. Sagna is widely expected to leave the Emirates Stadium after failing to agree a new contract.
Arsenal were reluctant to hand the 31-year-old the three-year deal he was asking for but have since offered him a contract worth £90,000-a-week until 2017.
However, their hard stance has seemingly backfired and Manchester City have taken advantage of the situation, offering him in excess of £100,000-a-week to try to tempt him northwards.
Manuel Pellegrini's team are now favourites to secure Sagna's signature ahead of other interested parties such as Chelsea and Manchester United.
Although Arsenal are still hopeful that Sagna will accept their final contract offer, worth £14m over three years and stay at the Emirates Stadium for the rest of his career.
They hope Sagne would have been inspired by Arsenal's FA Cup triumph to help Wenger lead the club into a new era of success. As one of their most senior and consistent players, he would form a key part of what should be an exciting new Arsenal team.
Wenger is getting ready to invest around £100m in the squad this summer, and remains hopeful that Sagna will perform a dramatic U-turn.
They reality is though, having already met with Manchester City officials and feeling let down over Arsenal's initial reluctance to meet his demands, Sagna is likely to leave for a Premier League rival.