Paetsch, of Spencerport, New York, admitted to his role in federal court Monday as part of a plea agreement, which calls for probation, 400 hours of community service and eight months of home confinement. He will also have to forfeit $265,000.
Paetsch last played for the Sabres in 2010 and has been with the AHL's Grand Rapids Griffins the past three seasons.
Authorities say Paetsch was involved in a gambling operation that took bets through offshore websites, placing wagers himself and receiving credit when he recruited fellow players and others to bet.
Two principals of the operation, brothers Mark and Joseph Ruff of Connecticut, were sentenced this year to nine years and just under 3½ years in prison, respectively, after pleading guilty to illegal gambling and other charges. A third man, Paul Borrelli of Rochester, is awaiting sentencing.
Paetsch's attorney said the player's involvement was minimal and that neither he nor the hockey players he introduced to the operation ever bet on hockey.
"With all the players, it was really a group of friends having fun gambling among themselves," attorney David Morabito said. "But they didn't realize that the individuals they were gambling with were much more serious people that were involved in a serious gambling operation."
Paetsch's contract with the Griffins, a Detroit Red Wings affiliate, ends at the end of this year, and the two sides are discussing an extension, Red Wings assistant general manager Ryan Martin said. The conviction will not affect talks with the defenseman, Martin said.
"Nathan's done a terrific job there helping us to develop our younger players for the Detroit Red Wings," Martin said. "He's a veteran that played in the NHL. He's got a great commitment to off-ice conditioning. He's a great role model for those players in terms of being a professional hockey player."
The home confinement and community service included in the plea agreement are not expected to interfere with his ability to play, Martin said.
U.S. Attorney William Hochul said Paetsch provided usernames and passwords for bettors to place Internet wagers and made arrangements for the collection of payments from bettors in Canada, New York, New Jersey, Pennsylvania and Florida. Paetsch would evade bank reporting requirements by keeping transactions to under $10,000, prosecutors said.
The charges to which Paetsch pleaded guilty, transmission of wagering information and structuring transactions to evade reporting requirements, carry a maximum potential penalty of seven years in prison.
Although the plea agreement requires Paetsch to forfeit $265,000 in lieu of a 2011 BMW and his interests in two homes, in Spencerport and Naples, Florida, the amount that he won gambling was much less, Morabito said, estimating it at around $26,000.
Morabito said Paetsch plans to apologize to his family, friends and teammates at his sentencing, scheduled for Aug. 31 in federal court in Rochester.
The Associated Press contributed to this report.