Make the situation humorous...and perform some other stuff to proof that you are, in fact, a magician.

I've kicked around the idea a few times, and.. while practicing, give them a folded note and tell them to open it after you do this card trick or sponge routine.

The note of course says "I've stolen your watch" or something on that line. Wouldn't that let them know that you were REALLY trying to have that as a part of your show?

I suggest quickly pulling out your goshmans sponge ding dong, And beating them to death with it. then make good your escape before anyone finds out you messed up

I would just have a friend coming around w/a video camera and say hey you think im that stupid. Also practice on your friends. Theyll probably know your joking.