United were intent on signing the England international, but Dortmund held firm with an asking price of €120 million (£109m), which the Red Devils were unwilling to match due to the uncertain financial situation after Europe's lockdown.
Watzke said they would not compromise next summer either over the sale of Sancho.
Without mentioning United by name, he said: "[They] misjudged the situation. We would be more willing to compromise. We had a clear line and will continue to do so next summer.
"In this industry, you can never say that a player is completely unsellable."