I suspect it's 5 million euros, which would be just under 4 million pounds. And I'm guessing that does NOT include his wages, which if we're paying 70% leave us paying around 65k/week (assuming he was on the reported 125k euros/week at Madrid).
I know that's not what we want to hear, but the truth is probably somewhere in between the Arsenal fans' claim that we're paying 5 million pounds and our claim that the 5 million includes the salary. I find that pretty hard to believe, personally, as if we are indeed paying him almost 70k/week, then that already comes to 3.5 million, and I'd be very surprised if Madrid let him go for 1.5 million pound loan fee. After all, you have to remember that he's probably worth at least 20 million pounds (at a guess at what his fee would be if he were on wages of 3.5 million per year) and you'd get him on a four- or five-year contract if you paid that.
In other words, his fee alone would amortise out to around 5 million per annum, so for a one year loan fee a payment of 4 million is actually a pretty good price. Especially for a team in our position that would struggle to attract a player of his calibre if we wanted to buy him. I think Rodgers took a chance and said "Let's push the boat out a bit for this lad, and if we're in the CL next season we can either try to sign him permanently then or we'll have the resources and the pull to go after other players at his level if he wants to go." It's a risk but a good one, as Rodgers really needs to have a good first season or he'll struggle to get us into the CL places in the future.