McGugan was thought to be available for a transfer from Watford and Wednesday had hoped to complete a deal for the central midfielder way ahead of pre-season as Stuart Gray looks to get his business finished early.
However, their hopes have been dented due to the managerial situation with the Hornets and McGugan's chances of signing at Hillsborough are now in doubt.
Watford are still trying to negotiate terms with current boss Slavisa Jokanovic and if they are unable to convince the Serbian to stay then McGugan may not be allowed to leave.
Although Jokanovic has deemed McGugan surplus to requirements, if Watford appoint a new manager they want to give him a chances to assess all his available options.
It means that McGugan may be offered a reprieve at Vicarage Road and that would be a blow to Wednesday as he has already shown his class while on loan with the Owls this season.