10:54 Nov 11, 2011 

ob·serve/əbˈzərv/
Verb:

1. Notice or perceive (something) and register it as being significant.
2. Watch (someone or something) carefully and attentively.

10:51 Nov 11, 2011 

'Observe' is perfectly correct in this context. 'Observe' is more analytical than just 'watch'. A couple of reliable refs for you:

www.footballreferee.org/articles_detail.php?id=18Cached
Referees must adopt the best position to **observe the players** and ball; when ... Geoff Thompson and Lord Triesman, leading football commentator John Motson, ...
#
England v Montenegro: Phil Jagielka's emergence puts Rio ...
www.telegraph.co.uk/.../football/.../England-v-Montenegro-
8 Oct 2010 – He will watch and **observe** the players in training, as always, but if ... at the self-appointed Leaders in Football conference in London this week. ...

10:45 Nov 11, 2011 

You observe ships sailing in and out of harbours, etc, but you watch and monitor young sports talent, and follow-up on it by writing reports, making contact with the players' family and the player himself, etc, etc. My version is how it is usually expressed in U.K. English.