Yeah, that’s exactly how it works and why it feels like a ripoff.
The upgrade offer is not replacing your ticket or refunding the $800 you already paid. It’s an extra charge on top of your existing economy ticket. So $800 + $2700 = $3500ish total, even if business was $2800 when booked outright.
Airlines do this all the time. They price upgrade offers based on demand and inventory, not based on what you originally paid or what the current business fare is. Sometimes the offer is decent, sometimes it’s terrible. This one is clearly terrible.
If business is still selling for $2800, the only thing that would make sense is canceling and rebooking, assuming your economy fare allows that without huge penalties.
Short answer: you’re not missing anything. The math really is that bad.