Gunners boss Unai Emery was linked with the Italian for weeks as he attempted to thrash out a loan deal for the 25-year-old.
But Tuttosport says Emery was unable to bring Rugani to England because Arsenal were not willing to agree to a clause in the loan arrangement that would almost guarantee they buy him next summer.
And it would have cost them around £28m to take him permanently if a number of conditions were met.
But transfer chief Raul Sanllehi was opposed to the idea.
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