Ex-Arsenal winger Serge Gnabry scored four second-half goals as the north London outfit completely fell apart on their home pitch despite taking the lead through Heung-min Son.
Speaking in his role as a pundit on BBC Radio Five Live , Waddle believes the result was borne out of Spurs' poor handling of off-field issues and says he does not understand the tactics on the pitch being used by under-pressure coach Mauricio Pochettino.
"I do not get the tactics," Waddle said. "It's not playing to their strengths.
"I don't think Serge Aurier wants to be there, Christian Eriksen hasn't signed a new contract. There is so much going on off the pitch.
"It should have been dealt with over the summer instead all the contract questions are still going on.
"It's a shambles. You have no idea where you stand. A club of this stature should not be like this. They have to sort it out quickly."
It was the first time Spurs had conceded seven goals at home in any competition, but the match had started so promising with Son's 12th minute strike.
However, the lead only lasted three minutes before Joshua Kimmich equalised and despite Spurs having their chances, Bayern took the lead on the stroke of half-time through Robert Lewandowski.
Gnabry's two-goal burst shortly after the break earned a 4-1 advantage for the Germans and even though Harry Kane pulled one back from the spot, Spurs fell apart to concede three goals in the final 10 minutes.
Former Arsenal player Gnabry scored twice either side of another for Lewandowski, in a result that left Waddle stunned by Spurs' capitulation.
"It's a genuinely shocking scoreline," Waddle said.
"Tottenham going forward are quite good - you have so many players there who can score goals but the forwards cannot win the games on their own.
"[They] played so well for the first 20 minutes but then they got tired and Bayern Munich attacked. They completely took them apart."
Tottenham will have the opportunity to bounce back in the Premier League on Saturday with a tricky trip to Brighton.