Distraction is the name of the game and people who are slight of hand can easily pickpocket a distracted viewer.
There isn't much that separates a street magician from the guy who plays 3 card monty or asks for a dollar (to leave you alone). And people want these entertainers close enough to take their watches? You know that they still ask for a tip afterwards. It takes a lot of trust to believe that everyone will get their items back and that there isn't a second "performer" stealing some additional "tips".