The striker's contract expires in the summer and he looks set to leave the club.
The forward’s contract is set to expire in the summer as he has expressed his desire to leave the club.
The Hornets are still interested though and may look to sign him on a free transfer once his contract expires at the end of the season.
However, as he is under the age of 24-years-old, the Reds would be due a compensation fee and they are willing to allow that to happen and let a tribunal decide on the matter.
Jurgen Klopp’s side expect to receive a fee above £2million if that were to happen, according to the Liverpool Echo report.
It is not the first time that they have employed such an approach in a dispute with a young player either.
Brad Smith departed after failing to agree on terms last summer, but the club retained his registration and as a result the Australian returned to accept the contract he had previously rejected.