Unfortunately, it’s not true. The Deacon was inspired by Deacon Jones and not by Wake Forest, according to Donald Fagen.
Art is not linear. It is not logical. It is mysterious. :)
"The song was largely written at Fagen's house in Malibu and was prompted by his observation that "... if a college football team like the University of Alabama could have a grandiose name like the "Crimson Tide" the nerds and losers should be entitled to a grandiose name as well." [1] The song's protagonist has been described by Fagen as "autobiographical in that it reflected the dreams of both Fagen and Becker about becoming jazz musicians while they were living in the suburbs". Characterized as a "loser" by Fagen, the song's subject was meant to reflect "... a broken dream of a broken man living a broken life".[1]
The name "Deacon" was influenced by Deacon Jones, a professional football player who played for the NFL's Los Angeles Rams.[1]
Now.... Go to 3:59 on this version of Deacon Blues and you'll read about the Wake Forrest Deamon Deacons football team and their 1-10 record, etc.