Okay, you're right that the Sadistic Conclusion does consider it better to avoid adding any people at all, and says that it's better to add people with negative welfare only if we are in a situation where we have to add someone.

So you're saying that by spending resources on not creating the new lives, people are essentially choosing the "create a life with negative welfare" option, but instead of creating a new life with negative welfare, an equivalent amount is subtracted from their own welfare. Am I understanding you correctly?