What is the size (and dimension) of the image?
If you want a single, nonrepeating background image, for best results, the image should be 1,920 pixels wide (or smaller if your users are on smaller screens). The website does not resize the image. You can upload a file up to 1 MB in size.
Have you tried using IE? There's a bug in Chrome and Firefox when trying to upload various things like images/metadata: Announcement: Errors Encountered in ArcGIS for Server and Portal for ArcGIS Web Apps after Certain B...
I seem to be having the same issue with ArcGIS Enterprise 10.5.1. I am able to upload a custom banner image, but get an error ("There was a problem uploading your custom background") when trying to upload a custom background image. The image is a .png that is 420 bytes in size. I tried to upload the same background image using Chrome, Firefox, IE, and Microsoft Edge, all with the same error. Do you know if there is a patch coming for 10.5.1 to correct this issue?
I'm not aware of a 10.5.1 patch - it might be worth submitting the issue to your Technical Support team.
Are you able to share the image on here and I'll try it in my instance?
I uploaded your image and received the same error - but when I saved, the image was applied to my home page (ArcGIS Enterprise 10.5.1/Chrome).
I also created a wider image by multiplying yours and it uploaded fine with no error and gave the same effect on the home page.