Arsenal are scouring the bargain bin this summer after missing out on Champions League football for the second year in a row.
The Gunners fell short in both the Premier League, where they finished fifth, and the Europa League – ending as runners-up.
It means Unai Emery has been given just £45m to play with in the transfer market and must get creative.
The Spaniard has a long list of targets in mind as he looks to sign a centre-back, a left-back, a wide forward and a replacement for Aaron Ramsey.
But with clubs jacking up their prices, Arsenal have had problems getting players in.
It has led them to Real Madrid starlet Ceballos, who Zinedine Zidane will allow to leave the club this summer.
Tottenham have long been monitoring the midfielder as Mauricio Pochettino loosen the pursestrings.
But Marca are reporting that the Gunners have now overtaken their local rivals in the transfer chase.
Ceballos is determined to leave the Bernabeu this summer in order to get a season of consistent game-time.
It is understood that the Spaniard will be allowed to leave on loan, with AC Milan also in the hunt.
The 22-year-old was stunning for Spain in the Under-21 Euro Championships – which the country won.
With Ceballos on loan, Arsenal would still have money to spend on other targets.
If a deal is struck, Emery will hope it will go better than the last loan from La Liga.
Denis Suarez joined from Barcelona on a temporary basis in January but utterly flopped during his time at the Emirates.
The 25-year-old made just four appearances in the Premier League before injury ruled him out for the rest of the season.