I agree, they should be ranked higher, definitely higher than USC. ESPN chose to start with the 1936 season because that was the first year there was a national poll. In my opinion, a more appropriate starting date would be 1919 because this was when college football became nationalized and 75,000+ stadiums were built. Previously, it operated predominantly in a semi-regionalized campus setting.
College football in the pre-1936 days gave us Knute Rockne, Howard Jones, Pop Warner, the Four Horsemen, the largest crowd ever to see a college football game (e.g., the 1929 game USC vs. Notre Dame at Soldier Field, the largest verified attendance in the history of NCAA football at 112,912).
Of course Oklahoma is going to be number one because ESPN gave points for going to a conference championship game which ND can't go to.
In addition, we were hurt by the rankings because from 1936 until 1968, Notre Dame was the most dominant program in CFB. Yet, we didn't play 1 bowl game.
I think if you can go back in time and have the bowl eligibility requirements be like they are now, ND is #1, USC & OU are in a dogfight for #2.
That's because they consistently get placed in better bowl games than they deserve because they have the widest fanbase of any team in the country. Every bowl wants Notre Dame because it guarantees ratings and ticket sales.
Going back 70 years is enough time to establish a list of perennial winners. Without looking up their exact record I can say with little doubt that Notre Dame lost position mostly because they've stunk for the past 9-10 years, especially in big games and big bowl games. All of their bowl games, especially major ones have been losers up to this past year when they beat the 3rd place WAC team. Compared to other schools on the list, that game may even have negatively affected their average score.
I can't remember their last win vs a top 10 team. Meanwhile, during most of this period, USC has almost owned the sport or shared it with a couple of SEC teams and maybe OU too. If there was any reason for ND to be ahead of USC, that might have been true 10 years ago, but not anymore.
But that was a good point you made about ND's popularity and their appeal helping to get them into big bowl games. Notre Dame has a distinct advantage because its popularity affects its postion in this rating system more than any other school. But this isn't about a popularity contest, even though in ND's case popularity means opportunity. It's about alltime power rankings.
Any school that ranks higher than Notre Dame should have greater separation from them considering that ND's popularity makes up for possible lower power ratings, an advantage no other school has. Other schools need a higher power rank to offset ND"s popularity to get the same opportuniies ND gets.
To be fair, this factor should bring ND's score down and make this about powerful football programs instead of the rewards that your popularity gets you. Perhaps bowl losses should count for less to make up for this discrepancy. I don't know the right answer to that.
No one other than ND gets the kind of consideration ND gets that puts ND into a major bowl game. This isn't supposed to be about Network TV money or anything else but college football programs who's rank is based solely on the quality of their play over the years which has earned them their their bowl berths and thus, position in this ranking system.
The obvious conclusion would be that Notre Dame's rank is skewed by it's popularity and therefore it should be rated lower than it is in terms of ranking all time power football programs.