No. Water is not a good sign. It has a mechanical cluch. It is not like a auto trans and shift hydraulic. OMC has some electric shift lowers and you see they are not around as they weren't that good of a ideal.
Short lesson.... You have 3 gears pinion, forward, and reverse. When the engine is started all 3 are turning. The propshaft is "coasting" between the forward and reverse. The propshaft have splines that the clutchdog rides on. The forward and reverse gears have lugs in them that the clutch dog also has. When you shift, you are causing the clutch dog lug and the lugs on the gear to "lock" and because the propshaft and clutch dog are splined together, then the propshaft then begins to turn. There are sever diferent ways manufactures move the clutchdog to shift it. They all basicly work the same. Water being in the case is not going to prevent a mechanical shift.