Old Firm have never been more belittled than now

They meet tonight but these are taxing times for Rangers and Celtic, whose status has been diminished to 'feeder clubs for the big boys down south'. Richard Wilson investigates

The last time Neil Lennon and Ally McCoist encountered each other on the touchline at Celtic Park, they made headlines across Britain and were among the triggers for a new law to be introduced in Scotland. Of all the skewed responses to the Old Firm rivalry – the intensity of feeling, the intolerance, the hysteria, the abandoned judgement – this brief confrontation between the two men seemed among the most mundane, yet symbolic.

As they shook hands at the end of a Scottish Cup replay one dark, fraught Wednesday night last March, McCoist leaned in close and said something to Lennon. The Celtic manager reacted with fury, and had to be held back. The home side had won the match, while Rangers had had two players sent off during the game and another, El Hadji Diouf, after the final whistle, and with Lennon being sent bullets and a parcel bomb in the post, it seemed as though the clubs' rivalry had run out of control.

The Offensive Behaviour at Football and Threatening Communications (Scotland) Bill passed into law two weeks ago, allowing police to arrest people who use sectarian or offensive terms of abuse. Supporters across Scotland, but particularly Old Firm fans, were united in their contempt for the law, and the sense that they were being unfairly targeted.

Attitudes that reach back to the very roots of the clubs' rivalry – the notion of Catholic v Protestant, republican v unionist – are being diminished. The consequence, though, is a loss of identity among the supporters. Some Rangers fans still sang bigoted songs on a couple of occasions last season, one of which led to a Uefa fine. This season, Celtic were punished by European football's governing body because some supporters sang an IRA chant. When Celtic then travelled to Italy to play Udinese, a "Fuck Uefa" banner was unveiled, and flares let off, which is likely to lead to a further fine.

The off-field dramas have been an insistent clamour, particularly at Ibrox. Craig Whyte's takeover was protracted, as the previous board aired its doubts about his wherewithal and tried to dissuade Sir David Murray from selling the club to him. Whyte is very vague about the extent of his wealth and he remains, through choice, an ambiguous figure, quick to call in the lawyers and sensitive to any perceived slight. Several newspapers have been briefly banned from Ibrox this season, and no Rangers employee is allowed to speak to the BBC, outwith their contractual duties, because of a documentary about the club's owner.

There is also the prospect of a tax bill that could demand a multimillion-pound payment. A judge is currently deliberating on whether or not the Ibrox side misused a tax-free employee bonus scheme, and there is a school of thought that losing the case could mean Rangers fall into administration.

This uncertainty manifests itself in constant speculation about the club's finances, how much money McCoist has to spend, if any, and which players might leave in the transfer window. Despite their size, status, global reach and heritage, the two Old Firm clubs have never been more belittled than now. The sheer, disorienting wealth of the Barclays Premier League means that Rangers and Celtic have become adjuncts to the English top flight; they are viewed by foreign players as a route into that division, while some of the best young talent developed in Scotland – such as James McCarthy, Graham Dorrans and David Goodwillie – considered transferring to smaller English clubs as a better career move.

"That's where Scottish football and the big two are," says Mark Hateley, the former Rangers and England striker. "It's a platform. We're like feeder clubs now for the big clubs down south, until times change. But I don't have binoculars to look that far ahead."

Television executives admit that outwith Manchester United and Liverpool, it is Celtic and Rangers that tend to draw their biggest audiences. Celtic Park is the fourth-largest stadium in the UK, Ibrox the eighth, but in terms of worldwide supporter bases, only Manchester United and Liverpool can compete with the Old Firm, who tap into the Scottish and Irish diaspora, particularly in North America, Canada and Australia.

Yet they are restricted in Scotland. The Scottish Premier League recently negotiated an improved television deal with Sky and ESPN which is worth £16m a season for the 12 clubs, less than the bottom team in the English Premier League would receive alone. Celtic are prudently run, and their most recent bank debt figure was £530,000; Rangers are limited in their spending under Whyte. The club's debt, of around £20m, is to Whyte's company, and he will waive it if they win the tax case (if they do not, he becomes the preferred creditor should Rangers be broken up, and so could in theory revive the team under a different company name but still at Ibrox with the same players).

It is this financial imbalance that keeps prompting the two clubs to press for a move to the Premier League, despite the English clubs voting against it two years ago. It is also why Celtic have sought to sign players from relatively untapped markets, such as South Korea, Israel and Honduras, in the knowledge that they represent value for money and can be sold at a profit. Rangers too invested £4m in Nikica Jelavic 18 months ago and will hope to sell him for a higher fee, although in the summer.

If off-field events have become a distraction, it is in part owing to the flawed nature of both sides; they will always be works in progress. Rangers were knocked out of the Champions League qualifiers by Malmo, then the Europa League qualifiers by Maribor, while Celtic only reached the Europa League group stages because their qualifying-round opponents, FC Sion, were thrown out by Uefa for irregularities in the club's signings.

Lennon's side improved as the competition progressed, but they also suffered a slump of form in the league. At one stage, they were 15 points behind Rangers, with two games in hand, and they were also 3-0 down at half-time to Kilmarnock at Rugby Park, a moment when Lennon briefly considered that his reign might be over. They have since regrouped, winning eight consecutive games in the league, while Rangers have stumbled. With the teams meeting at Celtic Park tonight, the Ibrox side are now top by only one point.

"I wouldn't call it a crisis," says McCoist. "But [the Old Firm game] is a fantastic fixture. The fact that we've been talking about this game for the last five or six weeks would indicate that whether we're masochistic or not, we're all looking forward to it. It has a wonderful history. It [the clash with Lennon last season] was a storm in a tea cup. There aren't a lot of things that come out of Scotland that grab the attention of the world. Let's be proud of it."

It might be said that the rivalry is the two clubs' strength as much as their weakness. They are huge social, sporting and community institutions, but eternally limited to the narrow scope of their surroundings. Fans will easily forget what happens in Europe, or the mundanity of so many of the SPL games, if they beat the other Old Firm side and win the league. Yet it remains an occasion so full of drama, fascination and passion that it cannot be suppressed. "You couldn't trust God in an Old Firm game," said Billy McNeill, the former Celtic captain, last week. At 71, with a lifetime of achievements behind him, he was still clearly stirred by the occasion. That is the worth of the rivalry, its endless sense of renewal, whatever the circumstances of the two clubs.

'Inside The Divide', by Richard Wilson, will be published by Canongate on 5 January in hardback, £16.99

Same old problems: Wilderness years

2003 Celtic lose Uefa Cup final to Jose Mourinho's Porto.

2005 Celtic debts estimated at £20m.

2006 Rangers reach last 16 of Champions League.

2007 Kenny Miller allowed to depart Celtic for Derby for just £2m.

2008 Rangers lose Uefa Cup final to Zenit, with fans rioting in Manchester. The following season, Rangers lose to Kaunas to exit Europe in August.

2009 Celtic win first away match in Europe for 23 matches. Rangers sell Charlie Adam to Blackpool for £500k.

2010 Celtic out of Champions League and Europa League by August.

2011 Rangers out of Europe by August. Celtic knocked out by Sion before earning reprieve. Rangers debt estimated at £20m.