In a competition, there are two clear favorites and then some other garbage. One of the favorites has to take a loss. When this happens, the other competitors cannot be moved ahead of the loser simply because of the loss. See example for correct application of said theory.
Per Colin Cowherd:
I would still rank Alabama and LSU 1 and 2 after this weekend if the game is close. Just because one of these teams has to take a loss doesnât mean that the other undefeated teams out there are suddenly better. Itâs like a beauty contest where there are two clear favorites and another girl has a dead tooth. The results are announced and one hot girl edges the other. Does that mean that you drop the loser below the girl with the DEAD TOOTH?!?!?! NO!!! And Oklahoma State, Boise State, and Oregon all have a dead tooth. Itâs the Dead Tooth Theory.