They start with the 4 title game champions and then they rank them by strength of schedule. Then the look for teams with the same or fewer losses than the lowest ranked of those 4 but an equal or stronger schedule and they would replace that team. Then you go to the next cycle looking for teams with fewer losses and a better strength of schedule.

The very tough part is how much weight to give to an extra loss but a tougher schedule. That's always going to be a tricky judgement call. How much do you penalize a team for a close loss against a very good team?