The Gunners are facing a battle to keep the Chile international at the north London club after Sanchez entered the final year of his current contract.
Arsenal could risk losing the South American on a free transfer next summer if Arsene Wenger decides against cashing in on their prized asset this summer.
Sanchez has been linked with a potential move to Premier League champions Chelsea or title challengers Manchester City over the past couple of months.
Bundesliga holders Bayern Munich, Serie A champions Juventus and Ligue 1 side Paris Saint-Germain have all been linked with a deal to sign Sanchez – too.
Arsenal, meanwhile, have been linked with a move to bring in France international Thomas Lemar from AS Monaco as a potential replacement for the South American.
Former Gunners midfielder Nicholas believes Arsenal should consider cashing in on Sanchez and using the funds on two summer signings.
“Sanchez has asked Arsenal for similar wages to Cristiano Ronaldo but he is not in the same world,” Nicholas told Sky Sports .
“It’s not about what you lose, it’s about how you replace it.
“They could sell £100m worth of players, sign Thomas Lemar and finally get a top-class centre-back and be in a stronger position.”
Arsenal made Bosnian defender Sead Kolasinac their first summer signing after the left-back completed a free transfer from Bundesliga outfit Schalke 04.
The Gunners have also spent a club record £52m fee on France and Lyon striker Alexandre Lacazette.
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