The selection committee preferred the Mustangs (11-2), losers of a heartbreaker in the Atlantic Coast Conference title game, who had a far less difficult schedule than Alabama (9-3) of the SEC but, ultimately, still one fewer loss.
The expanded bracket marks a new era for college football, though the Alabama-SMU debate made clear that there is no perfect formula for identifying a champion.
"We just felt, in this particular case, SMU had the nod above Alabama," said Michigan athletic director Warde Manuel, the chair of the selection committee. "But it's no disrespect to Alabama's strength of schedule. We looked at the entire body of work for both teams."
The tournament starts Dec. 20-21 with four first-round games involving teams seeded 5-12. It concludes Jan. 20 with the national title game in Atlanta.
Georgia, Boise State and Arizona State join Oregon with first-round byes
Georgia, the SEC champion, was seeded second; Boise State, the Mountain West champion, earned the third seed; and Big 12 titlist Arizona State got the fourth seed and the fourth and final first-round bye.
All will play in quarterfinals at bowl games on Dec. 31-Jan. 1.
Clemson stole a bid and the 12th seed with its crazy win over SMU -- the result that ultimately cost Alabama a spot in the field. The Tigers moved to No. 16 in the rankings, but got in as the fifth-best conference winner.
Texas, Penn St, Notre Dame and Ohio St get home field in first round
There was some tension around how the rest of the teams were seeded because that determined who gets home-field advantage in the first round. The games are No. 12 Clemson at No. 5 Texas; No. 11 SMU at No. 6 Penn State; No. 10 Indiana at No. 7 Notre Dame; and No. 9 Tennessee at No. 8 Ohio State.
Alabama comes up short in the bracket's biggest debate
The Big Ten will lead the way with four teams, followed by the SEC with three and the ACC with two.
The lasting memory from the inaugural bracket reveal will involve the decision that handed the ACC that second bid.
There's a portion of college football fandom that believes almost everything in the sport has been rigged in favor of Alabama and the SEC over recent years. The Crimson Tide has won three national titles in the 10-year history of the playoff and had made the field eight times, including last year when it edged out undefeated Florida State for the last of what was then four spots.
SEC backers argue the preferential treatment is deserved, mainly because the SEC is a 16-team league loaded with powerhouse programs.
This season, for instance, the Tide had the 16th toughest schedule and went 3-1 against teams in the top 25. SMU's numbers: 60th in strength of schedule and 0-2 against the top 25.
But the committee also indicated it was reluctant to penalize teams that play in conference title games. SMU did. Alabama didn't. And the way the Mustangs fought back from a three-touchdown deficit before finally losing to Clemson had an impact among the 13 people making the decision.
"We were impressed with the fact that SMU came back the way they did," Manuel said. "They performed better in that second half offensively," sort of like they have all season.
Automatic byes and bids made the bracket strange
Conference commissioners OK'd the idea of giving conference champions preferable treatment in this first iteration of the 12-team playoff. There's a good argument that needs to change.
The committee actually ranked Boise State, the Mountain West Champion, at No. 9 but the Broncos are the 3 seed, set to play in the Fiesta Bowl on Dec. 31. Arizona State was 12th-ranked but jumped to the No. 4 seed and will play in the Peach bowl on New Year's.
There's also no reseeding of teams after each round, which means No. 1 Oregon will face the winner of Tennessee-Ohio State in the Rose Bowl. Oregon beat Ohio State 32-31 earlier this year in one of the season's best games.
"Winning a national championship is not supposed to be easy," said Oregon coach Dan Lanning, apparently unbothered by the potential matchup.
Meanwhile, Georgia got the second ranking and second seed, and will play in the Sugar Bowl on Jan. 1, but quarterback Carson Beck injured his hand in Saturday's win over Texas, leaving his availability in question.
The committee has factored in injuries in the past, though it didn't appear to make a difference in how it treated Georgia.