It's unfortunate that Michigan's "title" game was against OSU during the season, but tough. They had their chance against the Buckeyes, it's someone else's turn in the National Title Game. USC will get their chance if they win out and deservedly so. Wins over BCS ranked Arkansas, Notre Dame, Nebraska, and Cal would be better quality wins than Michigan over Notre Dame, Wisconsin, and 25th ranked Penn State.
Either way, OSU is the overwhelming favorite. Who knows though, everyone was giving USC the title last year before the Rose Bowl (including me) and you saw what happened.
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