How do I properly report sighting a drone or hobby UAV to ATC?
Great question, and I'm not sure there is an entirely established procedure for this yet, as drones are still a relatively new development.

First, your responsibility as a VFR pilot is "See and Avoid".
So if you think its headed towards you, maneuver to avoid it (provided you're not making dangerous, drastic moves!)

Secondly, I'd report it to the tower as:
"Bay View Tower: N227TW:  I see a drone in the airspace, my 2 o'clock, slightly below, less than one mile, headed towards the airport"

At best, the tower may be able to say they're already talking to the drone operator.  Otherwise, tower may simply say, "Roger: keep me updated, deviate from the pattern at your discretion"