Half of Europe's leading clubs are losing money with more than 20 per cent facing huge deficits, UEFA's general secretary Gianni Infantino has told Reuters in an interview.
Despite revenues going up, UEFA is becoming increasingly concerned and will publish a report on the scale of the problem next month before bringing in new tougher regulations later this year.
The new rules will be part of UEFA's club licensing regulations in 2012-13, meaning that from 2013-14 clubs must break even or risk facing exclusion from the Champions and Europa Leagues.
UEFA does not believe major clubs will start to fold but it is worried that if the financial problem is not tackled now, it could spiral out of control.
"I would not paint such a cataclysmic picture of major clubs folding because football has always shown there can be solutions but having said that, we are seriously worried to see these trends. The clubs themselves are worried, the leagues are worried," Infantino said.
"These are the reasons that pushed us to take the decision to do something and what is healthier and what can bring a more sustainable model than saying you cannot actually spend more than the revenues that you generate.
"One could say if a club goes bust 'who cares?'. But we care. We care for that club and all the other clubs who would have problems because one club has gone and not paid them and then there is a spiral," added Infantino.
"We are doing this after very detailed research which we will publish next month. Our report has analysed 650 clubs all over Europe and it shows around 50 per cent of those clubs are making losses every year - and 20 per cent are making huge losses every year.
"Huge losses mean more than 20 per cent of their revenue. It also shows of these 650 clubs more than one-third are spending 70 per cent or more of their income on salaries only - which is worrying," said Infantino.
"The other element, which is again worrying, is that last season revenues in European football generally went up by 10 per cent which is very positive. But, on the other side, the increased costs have gone up 11.5 per cent and player salaries have gone up 18 per cent."
Debts and losses
UEFA draws a distinction between clubs in debt and those making losses. UEFA will not penalise clubs in debt to their own banks but those who owe money to other clubs, or who have not paid their players and staff salaries.
Clubs who continually lose money over a multi-year period will face sanctions.
UEFA will not, and under European law cannot, impose a limit on the salaries players earn but Infantino says that under the new rules clubs might have to cut the amount they spend on salaries.
"The limit would be the break-even rule. You could spend 80 per cent of your income on salaries if the rest of your costs are 20 per cent, travel costs, for example, everything, that is ok. But if your other costs are higher then the salaries have to go down."
There will be some exceptions to the new rules, says Infantino, for example, if a club incurs losses because it is funding a new stadium, or improving its ground or investing in a youth acadamy.
"Ironically, the fact there was a global financial crisis has helped in arguing it was the right thing to do, to get everyone on board," he said.
"We are not in a crisis now but it is time to act."