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The thing is, Kentucky still was getting tons of talent - they just didn't have a coach good enough to do anything with it.And kids weren't going to Kentucky because it was Kentucky pre-squid.
Being a "blue blood" certainly helps attract talent (IU excluded...not sure why they're considered to be at that level anyway), but you still need a good coach to be able to win something (see Roy Williams taking Matt Doherty's roster and turning them into champions).