Manchester United were expected to wrap up a deal for the England international in the summer, but the Red Devils ultimately failed to agree a fee with Dortmund and he remained at the Westfalenstadion.
Sancho has struggled to live up to last season's high standards after a summer of speculation, though, and Watzke thinks that the protracted transfer saga has indeed had an effect on his performances.
Speaking to German outlet Kicker, Watzke said: "Jadon had probably already subconsciously prepared himself a little bit for a change. I think he had at least thought about it so much that he lost his fluency.
"But I've felt he's been trying very hard for weeks. Things will pick up again very quickly. He is still one of the greatest talents there is."
Liverpool and Chelsea have reportedly joined Man United in the race to sign Sancho, who scored his first Bundesliga goal of the season at the 12th attempt in Dortmund's 2-0 win over Wolfsburg on Sunday.