The club announced on Thursday evening that it had signed a heads of agreement that would see the Beach Hotel and the Diamond Creek Tavern sold within six to 12 months.
Despite the massive loss, the sale of the hotels means Collingwood will avoid paying about $1 million a year in interest.
"While the operational performance of the two venues has improved in recent months, thanks to the introduction of a new management team, it was decided that we move from these highly geared venues into a more conservative business model in line with the market and world economic circumstances currently being experienced," club chief executive Gary Pert said in the statement.
Finalisation of the deal will see the club's debt on the venues repaid in full.
The sale of the pubs follows a recommendation made late last year by Collingwood's finance and operations committee headed by board member Mark Korda.
"We believed that a debt free position of the club would be appropriate," Korda said.
"The decision also reflected the performance of the Beach Hotel, which had not met forecast, and we recommended to the board a change in strategy."
Collingwood expects to return an operating profit of more than $2 million for the 2008 season, which Magpies president Eddie McGuire said was a reflection of the club's previous strong performances off the field.
"While it is extremely disappointing that a loss has been incurred, the outstanding performance of the club in recording nine years of record profits has meant that the loss can be absorbed without impact to the football club or its desire to continue to grow," McGuire said.
The club will continue to operate The Club in Caroline Springs, the Lilydale International and the Coach and Horses, which it reports are debt free and profitable.
