Back up external hard drive to Time Capsule?

The external drive must be formatted in Mac OS Extended (Journaled)

Open System Preferences (gear icon on the dock)

Open Time Machine

Click Options

Here, you will see the items that are Excluded from backups. By default, the external drive will appear

Click on the name of the external drive to highlight it

Click the - (minus) button at the bottom of the Excluded list......(to remove it from being excluded from backups)

Time Machine will back up both your Mac and and external drive on the next pass

(it is plugged into the iMac via usb).

USB hubs cause all kinds of issues. As a test, try plugging the drive directly into your Mac, restart the entire network, and test to see if the USB drive appears in Time Machine Options. If it does, then you know that the firmware of the hub is creating some issues. Try updating the firmware on the hub, if possible. If not possible, there is not much that you can do other than try another hub.

However I do not see a "Sparsebundle" for the external hard drive.

You won't. Let's not get ahead of ourselves here. Once you have the external backing up along with your Mac....then, I'll show you how to see the files in Time Machine.