The report said that "very little" of the roughly three billion euros ($4.02 billion) spent by European clubs annually on transfers found its way to the smaller clubs or grass roots level, the report said.
"The current system continues to mostly benefit the wealthiest clubs, superstar players and their agents," it said.
The number of transfers in European football more than tripled between 1995 and 2011 and the amounts spent by clubs increased seven-fold, but most of this was concentrated among a small number of the richest clubs, the report said.
"The situation is only increasing the imbalances that exist between the haves and have-nots, as less than two percent of transfer fees filter down to smaller clubs and amateur sport which are essential for developing new talent," it said.
"The level of redistribution of money in the game, which should compensate for the costs of training and educating young players, is insufficient to allow smaller clubs to develop and to break the strangle-hold that the biggest clubs continue to have on the sport's competitions."
Androul la Vassiliou, European Commissioner responsible for sports, said: "Our study shows that the rules... do not ensure a fair balance in football or anything approaching a level playing field in league or cup competitions.
"We need a transfer system which contributes to the development of all clubs and young players."
It suggested that a "fair play levy" be placed on transfers to encourage better re-distribution of funds.
"The aim of the levy would be to restore some competitive balance," it said. "The threshold, the rate of the levy and its scope should be determined by international football governing bodies in consultation with clubs."
The EC said it backed the Financial Fair Play policy which is being implemented by European soccer's governing body UEFA, aimed at limiting the spending of the major clubs.
Under the new rules, clubs will only be eligible for entry to European competition if their expenditure is less than generated revenue.
($1 = 0.7469 euros)
- Sports & Recreation