The Newcastle boss attempted to sign Deeney when he was in charge of Derby County, with the 26-year-old Englishman regarded as one of the most consistent strikers in the Football League.
He has now netted over 20 goals for the past three seasons, and captained the club during 2014/15 as they won promotion to the Premier League, finishing the Championship campaign in second place.
The forward is adored at Vicarage Road for his ability and passion for the club, having arrived from Walsall in 2010. He struggled in his first years in Hertfordshire, being sent to prison for a spell in 2012, before returning to improve and impress under Gianfranco Zola.
It is unlikely that the Hornets will sanction a deal for Deeney, with him arguably the most important player in their ranks, and having already rejected Premier League offers at the beginning of last season.
The Pozzo family have no need to sell prize assets to keep the club afloat, and Deeney is expected to start the season as the first name on the team sheet.
The report claims that the forward will command a fee in excess of £10 million, but that still seems a low price for a player with proven goalscoring ability, homegrown status, and who signed a new four-year contract last summer.