The Miami Sports and Exhibition Authority eventually endorsed a group led by NBA Hall of Famer Billy Cunningham and former sports agent (and lifelong friend of Cunningham's) Lewis Schaffel, who received their financial backing from Carnival Cruise Lines tycoon Ted Arison, who would be the majority shareholder of a potential franchise but defer the day-to-day operations to minority shareholders Cunningham and Schaffel.



In April 1987, the NBA expansion committee endorsed the bids of the cities of Charlotte and Minneapolis. However, the committee was split between awarding the third and final franchise to Miami or Orlando, causing representatives from both cities to toss barbs at the other. Finally, it was decided that the NBA would expand by 4 teams, with the Charlotte Hornets and Miami Heat debuting for the 1988'89 season and the Minnesota Timberwolves and Orlando Magic beginning for the 1989'90 season.

For their first head coach, Miami hired Ron Rothstein, who was a longtime assistant coach under Chuck Daly in Detroit and who was credited with being one of the architects of Detroit's stifling defense.

The Heat came into the NBA for the 1988'89 season with an unproductive first year, with a roster full of young players and journeymen. Among the players on the inaugural roster were first round picks Rony Seikaly and Kevin Edwards, fellow rookies Grant Long and Sylvester Gray as well as NBA vets Rory Sparrow, Jon Sundvold, Pat Cummings, Scott Hastings, Dwayne "Pearl" Washington and Billy Thompson. The team started out the season by losing its first 17 games, an NBA record. It did not help that the Heat were placed in the Midwest Division of the Western Conference. This forced them on the longest road trips in the NBA; their nearest divisional opponent was the Houston Rockets, over 900 miles from Miami. The team ultimately finished with a league-worst 15'67 win-loss record.

To help address Miami's league-low point production, the Heat picked Glen Rice from the University of Michigan in the first round of the 1989 NBA Draft, and Sherman Douglas of Syracuse University in the 2nd round. The team also moved to the Atlantic Division of the Eastern Conference for the 1989'90 season, where they would remain for the next 15 years. However, the Heat continued to struggle and never won more than two consecutive games, en route to an 18'64 record.

The 1989'90 season saw Miami awarded with the 3rd pick overall, only to parlay via two trades (first with the Denver Nuggets and later with the Houston Rockets) into getting the 9th and 12th picks, with which they selected Willie Burton of the University of Minnesota and Alec Kessler of the University of Georgia. Both picks flopped, as the Heat tried to turn Burton, a college small forward, into a shooting guard without much success and Kessler was bogged by injury problems and was not physical enough to be a quality NBA power forward.

While Rice, Seikaly and Douglas all showed improvement from the previous year, Miami still only went 24'58 and remained in the Atlantic Division basement.

Rothstein would resign as head coach at the end of the season, but later would return to the Heat prior to the 2004-05 season as an assistant coach, a role he still fulfills today.

In the wake of Rothstein's resignation prior to the 1991'92 season, the Heat hired Kevin Loughery, who had 29 years of experience in the NBA both as a coach and a player, to be their new head coach. For the 1991 NBA Draft, the team selected Steve Smith from Michigan State, who provided an agile guard to a more mature Heat team. With the help of rookie Smith, Rony Seikaly, and a more experienced Glen Rice, the Heat finished in fourth place in the Atlantic Division with a 38'44 record and made the playoffs for the first time. Playing the league-best Chicago Bulls, the Heat were swept in three games. Steve Smith made the NBA All-Rookie team and Glen Rice finished 10th in the NBA in scoring.

The 1992-93 NBA season included the additions of draft choice Harold Miner of the University of Southern California as well as trading a 1st round pick (which would turn into the #10 overall pick the following season) for Detroit Pistons forward/center John Salley. While Salley's addition was first met with optimism because of the role that he played on two championship Detroit Pistons squads, it became apparent quickly that Salley was a quality role player for a good team, but not a quality player for a mediocre team like Miami was at the time. Salley would eventually have his playing time diminish, ultimately resulting in his being taken by the Toronto Raptors in the 1995 expansion draft. As for the season itself, it started off poorly, with Smith missing time with a knee injury and Burton being lost for most of the year with a wrist injury. Upon Smith's return, Miami posted a winning record in February and March, but it was not enough to dig themselves out of the 13'27-hole they began in. They finished 36'46 and would not return to the playoffs.

A healthier squad fared better in 1993'94, posting the franchise's first-ever winning record at 42'40 and returning to the playoffs as the #8 seed versus the Atlanta Hawks. After Miami had a 2-1 series lead, Atlanta rallied from the deficit to win the best-of-5 series. After that season, Steve Smith would be selected as a member of the 2nd Dream Team, the collection of NBA All-Stars who were selected to compete in the 1994 World Basketball Championships in Toronto as Team U.S.A.. Dream Team II, also made up of future Heat players Shaquille O'Neal, Alonzo Mourning, Dan Majerle and Tim Hardaway, would go on to win the tournament.

In 1994'95, the team overhauled their roster, trading away Seikaly, Smith, and Grant Long. In return, the Heat obtained Kevin Willis and Billy Owens.

Also, at this time came a power shift in Heat's front office. On February 13, 1995 Cunningham and Lew Schaffel were bought out by the Arison family of Carnival Cruise Lines fame, who to that point in time had been silent partners in the day-to-day operations of the franchise until the buyout. Micky Arison, son of Carnival founder Ted Arison was named Managing General Partner. He immediately fired Loughery and replaced him with Alvin Gentry on an interim basis to try and shake up the 17'29 Heat. Gentry went 15'21 for the remaining 36 games of the season for a 32'50 record overall, 10 games off the previous year's mark.