Collard was initially banned for seven weeks, with a further two weeks suspended, after being found guilty of calling a VFL opponent a "f***ing f****t" last month.
The appeal board, chaired by Will Houghton KC, on Thursday backed the AFL disciplinary tribunal's decision that Collard was guilty of conduct unbecoming and dismissed St Kilda's appeal against that finding.
However, the board agreed with Saints lawyer Michael Borsky KC that the initial penalty was manifestly excessive.
On reducing the sanction, the board declared a suspension of that length would have had a "crippling" effect on the 21-year-old fringe player's career.
Collard's reduced two-week ban comes with a further two weeks suspended until the end of next season, when his existing contract expires.
St Kilda expressed disappointment that the charge was upheld, but welcomed the reduction in sanction.
"The club remains focused on supporting Lance throughout what has been a challenging period and asks for his privacy as he makes his return to play," St Kilda said in a statement on Thursday night.
"Despite the reduction in sanction, St Kilda remains disappointed with how the matter was assessed and believes greater consistency and clarity in the AFL's tribunal process is important moving forward."
It is the second time in three seasons Collard has been found guilty of using homophobic language in a VFL match.
He was banned for six games in 2024 after admitting to using the same slur on-field.
The appeal board said Collard's previous offending was "probably far more serious than the present offence".
It noted Collard's age, Indigenous heritage and difficult background in delivering its verdict, and said Frankston player Darby Hipwell was not personally offended by the slur directed at him.
"Ultimately, the appeal board has come to the view that the sanction imposed on player Collard by the tribunal was manifestly excessive," Houghton said.
The board observed the AFL and tribunal are succeeding in their efforts to stamp out racist, sexist and homophobic language on the field.
"However, that cannot be at the price of imposing what this board considers to be a crippling penalty on the appellant in this case," Houghton said.
"We described it as crippling because there was evidence before the tribunal in both hearings that a penalty of this extent would finish him off as a player of professional football."
Collard admitted calling VFL opponents "f****t" in 2024 but was adamant he did not utter the term this time.
Instead, he insisted he said "Come here, maggot" to Hipwell.
But the tribunal sided with Hipwell and his teammate Bailey Lambert, who both gave evidence at Collard's initial tribunal hearing on April 9.
Collard's two-week suspension for conduct unbecoming will be served cumulatively with the two-match ban he received for striking in the same VFL fixture.
A late hit on Frankston's Jackson Voss sparked the melee that led to Collard's confrontation with Hipwell.
The AFL considers the "conduct unbecoming" matter closed.
"The AFL reiterates that it has no tolerance for the use of homophobic language in our game and its expectations have been made extremely clear to all of our players, including by education that all AFL and VFL players receive," the league said in a statement.
The reduction of Collard's suspension brings to an end another drawn-out tribunal process after Port Adelaide's Zak Butters had his umpire-abuse charge thrown out.
The AFL ultimately issued an apology over a tribunal panel member's decision to disconnect from the initial hearing then continue listening while driving.
Last week, St Kilda coach Ross Lyon labelled the AFL's tribunal process a "firestorm", claiming it put unnecessary stress on the individuals involved.
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