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"Sad to say" is the correct phrase.
Example usage: I'm sad to say (that) Mary cannot join us for dinner.
OR
Example usage: I'm sad to say (that) Mary cannot have dinner with us.
Use "sad to say" when you want to tell another person something sad.
Example: I want to tell my brother that his dog died.=
I'm sad to say (that) your dog died.
NOT: I'm sadly to say (that) your dog died.

Sad to say would be the proper term to use. sadlywould be known as an adverb because of the last two letters.
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Q: Sad to say or sadly to say which is correct or either be used?
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