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In recent times, there have been listings for re-imaged covers. I'm curious how the copyright issues are handled. I understand that it can be registered as an arrangement of an existing copyright. When any revenues get distributed, the original copyright holders should still be in line to receive compensation. Any insight?

There is a line drawn between

Public Domain arrangements which you can register as alternate arrangements and can get some royalties and

True covers of existing copyrighted songs in which any arrangements still earn the original writer and publishers the royalties, and in general the only money to be made is through a Master Use License for the cover version. The sync fee goes to the original writer /pub. The Master use license goes to you the owner of the new master.

Most of the time since the writer and master owner (or you as composer and the library) own both sides, the "Sync fee" comprises the individual Sync and Master Use Licenses.
That's close anyways.

Usually covers are used for big money ad placements where the original artists / master might be asking for too much (like hundreds of thousands plus up to millions) and the music budget is much more modest.

Thanks Andy. That's I thought it would go. I'd enjoy working on a project of that nature, but couldn't see the financial return. So its back to working on cues.