McGugan spent a successful spell with Wednesday on loan last season, but they could miss out on his permanent signing with the Watford Observer claiming that he is set to return to Watford pre-season training next week.
Five players who all spent the 2014/15 campaign away from Vicarage Road are returning to Hertfordshire next Monday, as recently appointed head coach Quique Flores looks to assess his playing squad, and there are no indications that he wants to lose any players in the coming weeks.
This has dealt a blow to the Owls, who have been looking to sign McGugan on a permanent deal this summer following the expiration of his loan spell at Hillsborough.
Despite the departure of Stuart Gray as manager, it was reported by HITC Sport that the Championship outfit were confident of securing a deal for the 26-year-old midfielder, having scored three goals in 29 appearances last term.
Yet no deal has been agreed, and it appears as if a move for McGugan has now been put on hold following the latest report.
If Slavisa Jokanovic was still in charge at Vicarage Road it is likely a deal for McGugan would have been completed, seeing as he was the one who cast him out of the first-team squad, but the former Nottingham Forest midfielder will now be given every chance to impress by the new head coach.