Watts unceremoniously signaled that the ball had been recovered by Tennessee, and gave possession to the Volunteers at the Arkansas 37 yard line.
Scoring wouldn't resume until the fourth quarter, when Razorback Bill McClard kicked 19- and 30-yard field goals.
A third McClard kick was good, set up by Louis Campbell's third interception, but a penalty kept the Hogs off the board a fourth time.
Arkansas fumbled at their own 36-yard line, and Tennessee's Curt Watson scored three plays later.
Arkansas set a Liberty Bowl record with 104 interception return yards in the contest.