He was in charge at Sunderland for six seasons from 1889–96. During this time, he led the club into the Football League. Under his guidance, Sunderland won three league championships in 1891–92, 1892–93 and 1894–95, making him the most successful manager in their history. Watson's Sunderland were declared the "Team of All Talents" by William McGregor, the founder of the league, after a 7–2 win against Aston Villa.
Watson moved to Liverpool in 1896, and enjoyed further success there until his death in 1915. During his time at Liverpool, he won the league on a further two occasions, in 1900–01 and 1905–06. Those were the first two champion titles in Liverpool history. He also took Liverpool to their first FA Cup Final in 1914, which they lost 1–0 to Burnley F.C.