Because the costumes by Santo Loquasto, Woody Allen's regular set designer, too closely resemble those from Ragtime's original 1998 production, which were also designed by Loquasto. "“We learned this too late to remove the costumes from consideration by the nominators," a statement read, "but feel that we cannot allow the designs to remain in contention this year." Someone must have lost a lot of sleep over this difficult decision.
The odds of winning are now substantially higher for the remaining three contenders: Fela!, Memphis and La Cage aux Folles. (My money's on the latter.)